As Obama calls for short-term fix to avert sequester, CBO reports falling deficits

President Obama on Tuesday urged Congress to head off deep automatic spending cuts set to hit the Pentagon and other federal agencies on March 1 and replace them, at least for a few months, with a new debt-reduction package that includes fresh tax revenue.

As Obama spoke, the nonpartisan Congressional Budget Office rolled out new projections showing that the spending battles of the past two years have helped shrink record budget deficits but have also hampered economic growth.

(The Washington Post/Source: Congressional Budget Office) - Projected U.S. budget deficits.

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President Obama on Tuesday called on Congress to find budget cuts and tax changes to delay the sequester for a few more months until Congress finds “a smarter solution.”

The deficit — the annual gap between taxes and spending — is projected to fall to $845 billion this year, the first time it has come in under $1 trillion since 2008.

The improvement in the 2013 deficit is due in large part to tax increases adopted Jan. 1 and to the automatic spending cuts, known as the “sequester.” Together, the CBO said, those policies are expected to shave about 1.25 percentage points off economic growth this year and to cost the nation about 1.5 million jobs.

Obama said that he is committed to a broad effort to restrain the national debt and that past White House proposals to rein in Medicare costs and increases in Social Security benefits “are still very much on the table” as part of that effort.

But with the sequester due to hammer the fragile economic recovery in less than a month, the president said Congress should take quick action on a short-term measure to replace it, giving policymakers more time “to finish the job of deficit reduction.”

“Congress is already working towards a budget that would permanently replace the sequester. At the very least, we should give them the chance to come up with this budget instead of making indiscriminate cuts now that will cost us jobs and significantly slow down our recovery,” Obama said during an appearance in the White House briefing room.

“So let me just repeat: Our economy right now is headed in the right direction, and it will stay that way as long as there aren’t any more self-inflicted wounds coming out of Washington.”

The CBO expects the recovery to be more robust in 2014, with economic growth approaching 3.5 percent by the end of the year. But an economy subdued by government austerity is likely to have a jobless rate above 7.5 percent for a sixth straight year, the CBO said — the longest period in 70 years with unemployment above that level.

“As we look across the economy, we see momentum building,” CBO Director Douglas Elmendorf told reporters. But this year spending cuts and tax increases are forecast to “offset most of that gathering strength in the economy.”

Proposed replacements

Replacing the sequester for one month, without increasing deficits, would require about $12 billion in alternative savings. Obama declined to outline his proposal, immediately drawing fire from Republicans. The president has made clear that he expects wealthier Americans and industries with special tax advantages to shoulder some of the burden.

House Democrats have proposed replacing this year’s sequester cuts, worth about $85 billion through the end of September, with equivalent savings spread out over the next decade. Those include tax increases on millionaires and oil and gas companies, as well as cuts in farm subsidies. Senate Democrats are working on a similar plan.