Boehner Heads for Obama Talks as No Sign of Averting Cuts

The same cast of political leaders who agreed to a package of spending cuts designed to be intolerable to either political party gathers again this morning at the White House ready to let them begin.

The automatic cuts that threaten to eventually send poor children home from pre-school, prolong airport security wait times, reduce unemployment benefits and furlough defense workers were the way out of a standoff almost two years ago that put the nation on the edge of a debt default.

President Barack Obama is scheduled to meet at 10:05 a.m. with Republican House Speaker John Boehner and other legislative leaders after first a congressional supercommittee and then a new election failed to settle political differences over how to reduce the federal budget deficit.

The threat of spending cuts hasn’t done any more to overcome Washington’s gridlock, and the two sides instead have concentrated on blaming each other for the austerity measures on the horizon. Rather than negotiate, Republicans have pointed fingers at the White House for coming up with the idea and Democrats have accused their opponents of relishing the result.

“The Republicans want the sequester to go forward,” Majority Leader Harry Reid, a Nevada Democrat, said at a news conference yesterday, using Washington shorthand for the spending cuts. “They’ve said so, and any efforts at a reasonable approach to this, they won’t let us do it.”

Morning Meeting

Reid also will be in today’s White House meeting, as will Senate Republican leader Mitch McConnell and House Democratic leader Nancy Pelosi. All were parties to the budget deal that created the automatic spending reductions, which are set to begin by the end of today.

Boehner on the eve of the session reiterated his opposition to including any new tax revenue, a central demand of Obama and Democrats.

“How much more money do we want to steal from the American people to fund more government?” Boehner said. “I’m for no more.”

White House spokesman Jay Carney said the president anticipates a “constructive conversation” with congressional leaders, though not a deal to avert the cuts. Obama remains unwilling to consider a proposal that doesn’t combine cuts with more revenue from taxes, Carney said.

Market Reaction

The prospect of the cuts hasn’t deterred investors. The Standard & Poor’s 500 Index (SPX) is up 6.2 percent since the start of the year and yields on 10-year Treasuries have been little changed over the past month. The dollar led gains in world markets last month, climbing 3.5 percent, according to Intercontinental Exchange Inc.’s Dollar Index (DXY), which tracks the currency against those of six major U.S. trading partners.

The nation’s political leaders turned to sequestration in desperation in July 2011 as negotiations between Obama and Boehner on deficit reduction disintegrated and congressional Republicans refused to raise the legal debt limit, bringing the U.S. to the brink of default.

After Republicans gained control of the House in the 2010 midterm elections, they pressed for lower deficits through spending cuts alone, especially targeting the Medicare health program for the elderly. The Obama administration and Democrats demanded tax increases on high-earners and elimination of corporate tax breaks.

Debt Limit

The conflict came to a head when it came time to raise the government’s borrowing authority.

As a debt deadline approached, Jacob Lew, then the White House budget director, proposed sequestration to break the logjam. The legislative tactic of automatic across-the-board spending cuts was used to force compromises during the budget battles of the 1980s, when Lew, who is now Treasury secretary, was a congressional aide.

The White House team originally proposed that any shortfall in deficit targets be made up with an even split of automatic tax increases and spending cuts.

When Republicans refused, the two sides agreed to automatic spending cuts divided evenly between defense spending, a Republican priority, and domestic programs, a Democratic demand. Veterans’ benefits and entitlement programs such as Social Security and Medicare were mostly spared and the president was given authority to exempt the pay of uniformed military personnel.

Earlier Threats

The federal government worked under an annual threat of sequestration if Congress didn’t meet deficit reduction targets following a 1985 budget law sponsored by then-Senators Ernest Hollings, Warren Rudman and Phil Gramm. In three subsequent years, spending was at least temporarily sequestered, according to a Congressional Research Service report.

Scott Lilly, a former Democratic staff director for the House Appropriations Committee, said those automatic cuts weren’t as large the ones that will start kicking in today.

“We’ve never had anything that even begins to approach that,” said Lilly, now a fellow at the Center for American Progress, a Washington policy research organization. “The experience we’ve had with sequestration is in no way a precedent for what we are about to face.”

In 1986, $11.7 billion in spending was sequestered, about 1.2 percent of the overall federal budget, according to the CRS. A $20 billion year-long sequestration that began Oct. 20, 1987 was ended with a budget summit agreement reached a month later and a $16.1 billion sequestration for the 1990 federal budget was reduced through a deal to $4.55 billion, according to the CRS report.

Stable Economy

The spending cuts were “very minimal” said William Hoagland, a former Republican Senate Budget Committee aide. “The economy remained relatively stable.”

In 1986, for example, the economy grew at an average 2.8 percent pace and the benchmark Standard & Poor’s 500 stock index climbed 14.6 percent.

A much larger potential sequestration that the law threatened for 1991 was the impetus for the budget agreement President George H.W. Bush reached with congressional Democrats in 1990. That deal included tax increases opposed by many Republican members of Congress.

The federal government now faces $1.2 trillion in automatic spending cuts over nine years, including $85 billion this year. Because this year’s cutbacks would be squeezed into seven months remaining in the federal fiscal year, the result would be a 13 percent cut in most defense programs and a 9 percent cut in most non-defense programs, Danny Werfel, controller at the Office of Management and Budget said in a Feb. 8 briefing.

Spreading Argument

The blame trading included a public argument between the White House and Washington Post reporter Bob Woodward. Woodward wrote an opinion column published by the Post Feb. 22 accusing the administration of “moving the goal posts” with their terms for a deal. Republicans have been citing the article in arguing for their position in the debate.

Woodward, who gained fame for his reporting on the Watergate scandal that led to President Richard Nixon’s resignation, said on CNN Feb. 27 that a “very senior person” at the White House, whom he did not name, had warned him “you will regret doing this.” He said it made him “uncomfortable” that the White House was taking the approach.

An e-mail exchange between Woodward and National Economic Council Director Gene Sperling was published yesterday by Politico and confirmed by White House press secretary Jay Carney as authentic. It begins with Sperling apologizing “for raising my voice in our conversation today.”

In his e-mail, which Woodward replied to with a friendly response, Sperling writes “I know you may not believe this, but as a friend, I think you will regret staking out that claim.”

To contact the reporter on this story: Mike Dorning in Washington D.C. at mdorning@bloomberg.net.

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net.

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