Senate Democrats Close to Plan for Delaying Spending Cuts

U.S. Senate Democrats are close to proposing a $120 billion plan for a 10-month delay in automatic spending cuts for defense and domestic programs set to begin March 1, according to a Senate Democratic aide.

Half of the cost of putting off the across-the-board cuts would be covered by revenue increases and the other half by spending cuts, said the aide, who asked not to be identified in discussing the proposal.

The plan would set a minimum 30 percent effective tax rate for the highest earners, a provision known as the “Buffett Rule” after billionaire investor Warren Buffett. It also would deny companies the ability to deduct the costs of moving jobs and investments out of the U.S., the aide said.

Next month’s deadline for the cuts to take effect marks another fiscal showdown between President Barack Obama and Republicans. Unless Congress acts, $1.2 trillion in across-the-board spending cuts, known as sequestration, will take effect, weighing on U.S. economic growth.

The Obama administration yesterday began a public campaign to head off the automatic cuts, which White House officials said would reduce spending on education, small business loans, food safety inspections and defense.

The reductions “would cause very significant disruptions that would be felt far and wide across the country,” Danny Werfel, federal controller of the Office of Management and Budget, said yesterday during a White House briefing.

‘No Reason’

Werfel said the effects would include 600,000 women and children losing nutrition assistance, 70,000 children taken out of early childhood education programs, 2,100 fewer food inspections, and a reduction of as many as 12,000 scientists and students conducting research on disease or innovation.

“There is no reason, no reason, for that to happen,” Obama said yesterday at a farewell ceremony for Defense Secretary Leon Panetta. “Putting our fiscal house in order calls for a balanced approach, not massive, indiscriminate cuts that could have a severe impact on our military preparedness.”

House Speaker John Boehner has said that he would oppose any delay in the automatic reductions unless Congress replaces them with other “cuts and reforms.” He said it’s time for Obama and Senate Democrats to come up with a plan, saying he is “more than willing” to work with them.

Boehner’s spokesman, Brendan Buck, said yesterday that the Ohio Republican agrees that sequestration is the wrong way to cut spending. Still, he said Obama got a $650 billion tax increase on top earners as part of the last budget deal enacted on Jan. 2 and that it’s time to make cuts in federal spending.

Senate Plan

The Senate plan being considered includes more specific defense reductions and cuts to agricultural subsidies, the aide said. The revenue proposals Democrats are pursuing have been rejected before by the Senate, which Democrats control 55-45.

Senate Majority Leader Harry Reid, a Nevada Democrat, said on ABC’s “This Week” on Feb. 3 that he would focus on “low-hanging fruit” for coming up with the revenue.

Eliminating tax breaks for oil and gas companies and for corporate-jet owners were other examples Reid cited.

Last year, the Buffett Rule proposal was estimated to raise $47 billion over 10 years. Lawmakers haven’t released an updated figure, though the amount raised will be higher because it will be compared with lower rates on dividends and the changes to the alternative minimum tax that were part of the Jan. 2 law.

A similar proposal last year from Senator Debbie Stabenow, a Michigan Democrat, to eliminate incentives for companies to move jobs overseas would have raised $168 million over a decade.

Job Losses

Werfel briefed reporters yesterday with Jason Furman, principal deputy director of the White House National Economic Council, as the administration sought to ramp up pressure on Republicans for a deal.

Furman said the cut in spending would cost “hundreds of thousands of jobs” in the U.S., including federal employees.

While there are signs of strength in the housing market and gains in hiring, forecasters predict a slower U.S. economic expansion this year as tax increases and spending cuts crimp growth and the global economy remains weak.

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.

CBO Forecast

The nonpartisan Congressional Budget Office said in its latest forecast on Feb. 5 that the economy would expand by just 1.4 percent in 2013, partly because of budget-cutting in Washington. It predicts growth would increase to 3.4 percent the following year.

Furman said the White House had “no opinion” on the agency’s forecast, while adding that “they’re never very far off” in their estimates.

The Defense Department already is preparing for the prospect of reduced funding this year. Panetta has delayed the deployment of an aircraft carrier to the Persian Gulf to save money and the Pentagon has issued a memo authorizing the firing of temporary defense workers and unpaid leave for civilian employees.

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