Obama’s Claim on Spending Cuts Not Matched By Progress

Photographer: Joe Raedle/Getty Images

President Barack Obama speaks during a campaign rally at the Delray Beach Tennis Center on Oct. 23, 2012 in Florida. Close

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Photographer: Joe Raedle/Getty Images

President Barack Obama speaks during a campaign rally at the Delray Beach Tennis Center on Oct. 23, 2012 in Florida.

President Barack Obama’s statement that $109 billion in automatic spending cuts “will not happen” in 2013 isn’t matched by progress with lawmakers in Congress toward a deficit-cutting agreement to avert the reductions.

Obama made the prediction during last night’s presidential debate after Republican nominee Mitt Romney accused him of endangering the national defense by proposing “a combination” of budget cuts and “sequestration cuts” that would curb U.S. military spending by $1 trillion.

The automatic cuts in defense and non-defense spending are set to start in January if Congress doesn’t agree on a budget- cutting plan during a lame-duck session after the Nov. 6 election. Currently there are no formal talks between congressional leaders and the president, though groups of lawmakers have discussed ideas for averting the automatic cuts.

In last night’s debate, Obama replied to Romney that the automatic “sequester” of $109 billion in spending next year “is not something that I’ve proposed. It is something that Congress has proposed. It will not happen.”

The automatic spending cuts stem from legislation enacted in 2011 that appointed a bipartisan committee to find $1.5 trillion in deficit savings over 10 years. The law mandated $1.2 trillion in automatic spending cuts over a decade if the panel failed -- as it did -- to agree on a deficit-reduction plan.

Borrowing Authority

The law requires the spending cuts to address House Republicans’ demand for reductions to match an increase in the government’s borrowing authority.

Kevin Smith, a spokesman for Republican House Speaker John Boehner of Ohio, questioned Obama’s assertion.

“If the sequester isn’t going to happen, as he says, will the president finally offer a plan to solve the problem?” Smith said in an e-mail today. “For the past year, the president has refused to show any leadership in resolving the sequester.”

Presidential spokesman Jay Carney told reporters in Washington today, “What the president said last night was a reiteration of what his position has long been. The president remains confident that we will be able to move forward. There will be a balanced deficit-reduction package.”

Tax Cuts

A spending agreement has been held up in part by a dispute over the George W. Bush-era tax cuts, scheduled to expire Dec. 31. Obama wants to extend them for annual income of up to $200,000 for individuals and $250,000 for families, while letting them expire for income greater than those amounts.

Republicans insist on extending the tax cuts for all income levels.

After the debate in Boca Raton, Florida, White House communications director David Plouffe said the spending cuts “won’t happen if people are willing to have compromise and balance.” The spokesman said, “It’s an easy cocktail of how you fix this.”

Obama campaign adviser David Axelrod told CNN the president “can be sure” the cuts won’t happen because “there are plenty of people on both sides who want to get that done and will get that done.”

Although partisan disputes have thwarted resolution so far, some industry lobbyists say Obama’s remark reflects a growing desire by members of both parties to avert the budget cuts.

Momentum ‘Growing’

The president of the Aerospace Industries Association, Marion Blakey, today said “momentum is growing toward a resolution” and called on lawmakers and top White House officials to immediately start working on a proposal to avert the reductions. Waiting until after the election would leave too little time before spending cuts would begin in January, said Blakey, whose group represents Boeing Co. (BA), Lockheed Martin Corp. (LMT) and other companies.

“It has to be addressed right now,” Blakey said in a conference call with reporters. “It would increase the chances of success substantially.”

On Oct. 16, Republican Senator Marco Rubio of Florida said the year-end deadline to avert the spending cuts may prove less important if Romney wins the election.

50-50 Chance

“If President Obama loses, I think it’s a 50-50 chance that nothing happens because the markets may say, ‘We’ve got a new president coming so, you know, we’ll give you guys a couple of extra months to work this thing out,’” Rubio said at a Bloomberg View breakfast in New York. “Markets will give you a couple of months to get President Romney on the ground to work on it.”

Romney and Republicans have tried to pin political blame for the scheduled cuts in defense spending on Obama and Democrats, though they were approved by bipartisan majorities of the House and Senate.

The automatic cuts were negotiated by congressional leaders and White House officials. Obama and Democrats insisted on a 50- 50 break between defense and non-defense cuts, according to Democratic and Republican officials who spoke after the talks on condition of anonymity. Republicans resisted such a split.

To sell the plan to members of his own party, Senate Republican Leader Mitch McConnell proposed one last change: a 50-50 split between security and non-security programs to include foreign aid and homeland security, thereby reducing the effect on military spending.

To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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