Obama Urges Congress to Delay Automatic Spending Cuts

President Barack Obama urged Congress to postpone automatic spending cuts scheduled to begin March 1 to avoid “real and lasting impacts” on U.S. economic growth.

Obama said lawmakers should act on a short-term package of spending cuts and changes to the tax code that would increase revenue, such as limiting tax breaks, to replace part of the $1.2 trillion in across-the-board reductions.

“Deep, indiscriminate cuts to things like education and training, energy and national security will cost us jobs and slow down our recovery,” Obama said at the White House. “This doesn’t have to happen.”

The March 1 deadline marks another fiscal showdown between the administration and Republicans, who have a majority in the House of Representatives. Republican leaders have said they expect the spending cuts to take effect, partly because they won’t agree to new revenue measures that Obama and some other Democrats have said they want.

“We believe there is a better way to reduce the deficit, but Americans do not support sacrificing real spending cuts for more tax hikes,” House Speaker John Boehner, a Republican from Ohio, said today in a statement.

Tax Changes

Obama didn’t specify what tax changes he would seek. He has said previously that he wants to trim tax breaks for top earners and change the treatment of profits in buyout deals, known as carried interest.

Those profits are often treated as capital gains, which receive preferential rates under the tax code compared with levies on wages; Obama has advocated counting the earnings as ordinary income for tax purposes. That would raise about $16.8 billion, according to the congressional Joint Committee on Taxation.

The president framed the debate in economic terms.

“Our economy right now is headed in the right direction and will stay that way as long as there aren’t any more self-inflicted wounds coming out of Washington,” Obama said.

While there are signs of strength in the housing market and gains in hiring, forecasters predict a slower U.S. economic expansion as tax increases and spending cuts crimp growth and demand for exports drops with a weakening global economy.

Economic Growth

After the U.S. economy advanced at a 3.1 percent annual rate in the third quarter, the government reported last week that it stalled in the final three months of the year, registering a 0.1 percent decline in part because of lower defense spending. The median estimate of economists surveyed by Bloomberg is for growth of just 2 percent this year.

Congress created the automatic cuts in August 2011 as part of an agreement to raise the U.S. debt ceiling. They were set to begin in January, though lawmakers delayed them for two months in a Jan. 1 measure that let tax rates rise on top incomes.

Democrats are debating alternatives for replacing the spending cuts during a closed-door retreat today in Annapolis, Maryland. Senate leaders including Patty Murray of Washington, chairwoman of the Budget Committee, and Appropriations Committee Chairwoman Barbara Mikulski of Maryland will address lawmakers on fiscal issues.

There is no agreement on what options Democrats will choose or how big the plan should be, said two Democratic aides, who sought anonymity to discuss the private talks.

Revenue Alternatives

One alternative would be a $50 billion package of spending reductions and higher revenue to cover a five-month delay of the automatic cuts, one of the aides said. Obama isn’t expected to outline specific cuts, according to one of the aides.

Senate Majority Leader Harry Reid said Jan. 29 that Democrats would discuss the cuts at the retreat.

“There are many low-hanging pieces of fruit out there that Republicans have said they agreed on previously,” Reid, a Nevada Democrat, told reporters, citing one that addresses oil companies. “We’re going to make an effort to make sure” that action on the spending cuts “involves revenue,” he said.

Higher taxes on oil companies that Democrats have considered repeatedly would raise more than $20 billion. Senator Carl Levin, a Michigan Democrat, has suggested corporate tax changes that would limit companies’ ability to shift profits outside the U.S.

Republican Stance

Republicans say they won’t accept any tax increase, let alone corporate changes they call gimmicks, to prevent the spending cuts from occurring.

“The challenge we face right now is the fact that government spending is completely out of control,” Senator Mitch McConnell of Kentucky, the Republican leader, said yesterday on the Senate floor. “So to focus on a tax of any kind is to miss the point entirely.”

In an interview on Bloomberg Television today, House Majority Leader Eric Cantor said Democrats and the president have been “absent” in working toward fiscal discipline. “All we hear from this president is ‘we’ve got to raise people’s taxes.’ That’s just not the answer,” said the Virginia Republican.

Boehner and House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, have said they expect the full spending cuts to take effect.

Last year, the House passed a bill to replace the reductions with curbs on entitlements and other programs, including federal food stamps. It also would have ended the child tax credit for non-U.S. citizens.

Funding Clash

The parties also may clash over how to fund the government for the rest of the fiscal year. House Republican leaders are considering a stopgap measure at a lower cost than the current $1.043 trillion budget, said Representative James Lankford, an Oklahoma Republican.

The measure, known as a continuing resolution, would fund the government through Sept. 30 at about $974 billion, Lankford said in an interview yesterday. “It’s a serious cut,” he said.

Republicans also are criticizing Obama for missing the legal deadline for submitting his budget plan to Congress, which is the first week in February. Obama will send his fiscal 2014 spending proposal in mid-March, according to a budget official.

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