President Obama on Tuesday called on Congress to pass a small package of spending cuts and tax changes to delay the start next month of deep reductions in domestic and defense spending that could deliver a fresh blow to a fragile economic recovery.
With time running out, Obama said, Congress should adopt measures to postpone the automatic spending reductions, known as the sequester, for a few months. Without any action, the cuts, worth $1.2 trillion over a decade, are scheduled to take effect March 1 and are causing deep anxiety among government workers and contractors.
Obama did not outline a specific proposal, and he said he still favored a broad deal of spending cuts and tax changes — which would eliminate deductions and loopholes that benefit the wealthy and certain industries — to replace the sequester.
“If Congress can’t act immediately on a bigger package, if they can’t get a bigger package done by the time the sequester is scheduled to go into effect,” Obama said in the White House briefing room, “then I believe that they should at least pass a smaller package of spending cuts and tax reforms that would delay the economically damaging effects of the sequester for a few more months.”
To delay the sequester for several months, any plan passed by Congress would have to reduce borrowing by tens of billions of dollars through a combination of alternative spending cuts or tax increases. The White House said it would work with Congress on crafting the package.
While the sequester cuts domestic and defense spending almost indiscriminately, any new package backed by the White House could find alternative savings by targeting specific programs for cuts or closing tax breaks, such as those that benefit oil and gas companies or users of corporate jets.
Republicans have been warming to the idea of allowing the sequester to go forward because it guarantees sharp cuts in spending. The GOP might agree to other reductions to replace the sequester — especially since many Republicans are concerned about slashing the defense budget — but any proposal to raise taxes would likely be a flashpoint. The president has made clear he expects wealthier Americans and industries with special tax advantages to pay more toward deficit reduction.
Responding to news earlier in the day that Obama would make the announcement, House Speaker John Boehner (R-Ohio) said Republicans would oppose any tax increases and noted that Obama was the one who first proposed the sequester.
“There is a better way to reduce the deficit, but Americans do not support sacrificing real spending cuts for more tax hikes,” Boehner said in a statement. “The president’s sequester should be replaced with spending cuts and reforms that will start us on the path to balancing the budget in 10 years.”
The sequester is not the only looming deadline. A continuing resolution funding the government expires in late March, and the government will shut down without further action by Congress. And there is another deadline to raise the federal debt limit in the summer.
A report last week showed that the economy contracted in the fourth quarter of 2012, in part because of sharp reductions in defense spending and concerns about the sequester.
“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,” Obama said Tuesday.
Just before the president’s announcement, the Congressional Budget Office released its economic projections for the year ahead. The nonpartisan CBO said that by the end of 2013, the federal budget deficit will come in under $1 trillion — the first time in five years. The gap between taxes and spending is estimated to narrow to $845 billion in the fiscal year that ends in September, the release said.
Attributed in large part to tax hikes adopted on Jan. 1 and the sequester set to hit next month, the CBO’s new projections show the deficit continuing its drop in 2014 and 2015, and falling to less than 3 percent of the overall economy for much of this decade.
Obama’s push for a short-term solution picked up Democratic support in the Senate on Tuesday.
“I agree with President Obama that if we can’t agree now on a long-term solution, the best thing for families and the economy would be to pass a balanced short-term sequestration replacement while the House and Senate work on our budget resolutions," said Sen. Patty Murray (D-Wash.), chairwoman of the Senate Budget Committee.
The sequester was a mechanism that Congress and the White House designed in 2011 to force policymakers to generate significant deficit reduction over the next 10 years.
While they have made progress on that front — gaining more than $2.5 trillion in deficit savings — they have not come to a broad agreement as many hoped.
The sequester would slice $1.2 trillion in domestic and defense spending over 10 years, indiscriminately cutting most programs. (Some programs, such as Medicaid and food stamps, are exempt.)
The “fiscal cliff” deal at the start of the year postponed the sequester for two months.
Obama favors a broader plan to permanently end the sequester and replace it with a series of reductions in health care and other mandatory spending as well as the elimination of tax breaks that benefit the wealthy and industries. He said on Tuesday his offer to Boehner from December, reflecting these principles, is still on the table.
Republicans favor deep cuts to spending without raising taxes any more.