Obama wants short-term deal

Reuters.

US President Barack Obama calls on Congress to pass a small package of spending cuts and tax reforms that would delay the larger, automatic "sequester" cuts from going into effect during an announcement in the White House briefing room in Washington February 5, 2013. Huge cuts to defense and domestic programs are slated to go into effect in roughly three weeks, a threat that has caused uncertainty and negatively affected economic growth, a White House official said.

Washington - US President Barack Obama asked Congress Tuesday to construct a package of short-term spending cuts and tax revenue to put off the automatic across-the-board cuts now scheduled to kick in March 1, in a bid to dodge a potentially disastrous hit on the still weak US economy.

Fearing that hard-core Republican budget-cutters in Congress are prepared to let the automatic cuts take effect, a move that some economists worry would send the country back into recession, Obama asked lawmakers to produce an interim series of cuts that would take effect in the coming months. He gave no specifics but said he was standing by his offer to House Speaker John Boehner for a grand bargain. Obama has said he is willing to see some cuts in the social safety net that protects older Americans.

“This doesn't have to happen,” Obama said of the dramatic across-the-board cuts looming next month. He spoke in brief remarks at the White House, adding that there should be no reason for the “self-inflicted wounds,” job losses and hits to already weak economic growth “just because folks in Washington” couldn't come up with a plan to reform government spending and close loopholes in the federal income tax laws. He did not take questions.

He also emphasized the need for more revenues arguing: “We can't cut our way to prosperity.”

In a statement before the president spoke, Boehner nixed increased revenue, saying: “...Americans do not support sacrificing real spending cuts for more tax hikes.”

The automatic cuts were supposed to take effect January 1. But Obama and congressional Republicans struck a New Year's deal that extended Bush-era tax rates for all but the wealthiest Americans and put in place about $24 billion in deficit reduction. That delay effectively postponed the automatic reductions to March 1.

If the automatic cuts are allowed to kick in on the March 1 target, they would reduce Pentagon spending by 7 percent and domestic programs by 5 percent. Food stamps and Medicaid, that help provide food assistance and medical care for the poor, would be exempt. The Medicare health insurance program available to Americans at age 65 could see a 2 percent cut. While taking a huge bite out of the economy, the cuts would inevitably lead to job losses at a time when unemployment is still at 7.9 percent nearly 4 ½ years after the financial crisis that sent the United States into its deepest downturn since the Great Depression of the 1930s.

Obama will ask for a targeted way to reduce the deficit, now running at more than $1 trillion a year, in the short term, perhaps several months. White House officials said that Congress needs more time to work out a 10-year plan worth more than $1 trillion in deficit reduction. Obama is not placing a time span or a dollar amount on the short-term plan. Officials said he will leave that to Congress. The accumulated US debt has grown to more than $16 trillion.

Finding deficit reductions of up to $85 billion would put off the automatic cuts, known as a “sequester” in government budget language, until the start of the new fiscal year. White House officials say the delay will give Congress and the administration time to negotiate a long-term deal through the regular legislative budget process.

The automatic cuts are part of a 10-year, $1 trillion deficit reduction plan that was put together more than a year ago and was supposed to spur Congress and the administration to act on long-term fiscal policies that would stabilize the nation's debt by lowering it a total of $4 trillion over 10 years. Though Congress and the White House have agreed on about $2.6 trillion in cuts and higher taxes since the beginning of 2011, they have been unable to close the gap between that figure and the long-term, decade-long goal.

The looming automatic cuts were among a series of potential fiscal crises facing the United States in the first year of Obama's second term. The big package of cuts, now scheduled for March 1. Also pending is a feared Republican refusal to raise the nation's borrowing limit. That confrontation was put off last month until May. A failure to raise borrowing power could lead the country to default on its debt obligations. - Sapa-AP