Obama Will Urge Delay in $85 Billion Sequester
Business + Economy

Obama Will Urge Delay in $85 Billion Sequester

iStockphoto/The Fiscal Times

With the federal bureaucracy and state governments girding for massive across-the-board spending cuts set to kick in March 1, President Obama will call on Tuesday to postpone the automatic cuts or “sequestration” from taking effect and instead adopt a small package of spending cuts and tax changes.

The cuts, equally divided between defense and domestic programs, are a down payment on more than $1.2 trillion of long- term deficit reduction agreed to by the president and Congress in August 2011, as part of a deal to raise the federal debt ceiling and begin to bring the deficit under control. Those cuts originally totaled $109 billion and were due to take effect at the start of this year. But the White House and congressional leaders put them off until next month as part of legislation approved New Year’s Day to avert the fiscal cliff.

House Speaker John Boehner, R-Ohio, noted today that while Republicans agree sequestration is a clumsy and damaging way to reduce the deficit, “President Obama first proposed the sequester and insisted it become law.”

“Republicans have twice voted to replace these arbitrary cuts with common-sense cuts and reforms that protect our national defense,” Boehner said in a statement. “We believe there is a better way to reduce the deficit, but Americans do not support sacrificing real spending cuts for more tax hikes. 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.”

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While Republicans might agree to alternative spending cuts, tax changes would likely be a major bone of contention. Obama has made clear he expects wealthy Americans and select industries, such as finance and oil and gas, to pay more taxes toward deficit reduction, while Boehner and House Minority Leader Mitch McConnell, R-Ky., say they refuse to go along with raising more revenue after agreeing to nearly $700 billion of increased taxes as part of the New Year’s Day fiscal cliff agreement.

While for months the president and many congressional leaders have signaled a desire to postpone or cancel sequestration, for fear of hollowing out the military and undercutting the economic recovery, the Pentagon and defense industry late last year began dramatic belt tightening in anticipation of the cuts that  literally put a crimp in the economy.

The government reported last week that the economy contracted at an annual rate of 0.1 percent in the last three months of 2012 in part because of a precipitous drop in military spending.

And while the Defense Department continues to freeze civilian hiring, reduce base operating funding and curtail a range of spending on facilities maintenance, travel and training, scores  scores of other departments and agencies are on high alert to impose similar cutbacks in their programs in anticipation of sequestration.

Dealing with the sequester is part of the latest fiscal challenges confronting Congress and the White House since the two sides averted a year-end confluence of major tax increases and spending cuts that threatened to threaten to  to shoveshove the economy back into recession. Another challenge will be extending a continuing resolution that is keeping the government operating on a temporary basis but that due to expire on March 27. Moreover, both parties are calling for  entitlement and tax reform, but with profound differences on how to approach those changes.

President Obama yesterday missed the formal deadline for submitting a new budget plan, and officials say one is unlikely to be unveiled until mid-March or so. The Senate and House have agreed to draft budget plans of their own this spring, after the Senate declined to introduce budget plans for the past three years.

“Given that the budget process in Congress won’t likely be completed by March 1st, the president on Tuesday will call on Congress to pass a smaller package of spending cuts and tax reforms to avoid the economically harmful consequences of the sequester for a few months,” a White House official told The Washington Post. The official said that the delay “will allow Congress more time to reach a solution that permanently avoids the sequester and significantly reduces the deficit in a balanced way.”

Alan Krueger, chairman of the president's Council of Economic Advisers, told MSNBC late last week, “The sequester is bad policy. It's something that we should eliminate. It wasn't intended to take place. And we got a taste for the impact the sequester might have if it were to take place with the last GDP numbers. Also we would emphasize that in addition to the broader effect on the economy, cutting Head Start indiscriminately, cutting some of the essential services that people rely on is not good for the country.”

White House acting budget director Jeffrey Zients warned department heads and government managers in January that there will be “significant and harmful impacts” on a wide variety of government services and the potential for furloughing hundreds of thousands of government employees if the across-the-board cuts take effect. The cuts would also deliver a huge blow to state government in the form of diminished federal aid and grants.