Obama Pressures Congress for Deal to Avert Automatic Cuts

President Barack Obama stepped up pressure on Congress to avert a “brutal” automatic $1.2 trillion in budget cuts set to kick in March 1, saying it would harm the economy and curtail vital services.

Obama said that if the spending reductions take effect, the U.S. may lose hundreds of thousands of jobs, military readiness would be damaged, aid to state and local governments would shrink and the ability of the government to respond to natural disasters or other emergencies would be diminished.

If lawmakers can’t agree on a broad deal to replace the across-the-board spending reductions, Congress should “at minimum” pass a temporary, smaller package that provides more time for negotiations, Obama said today in Washington.

“These cuts are not smart, they are not fair, they will hurt our economy, they will add hundreds of thousands of Americans to the unemployment rolls,” Obama said. “This is not an abstraction, people will lose their jobs.”

By law, the cuts, spread over nine years, would be equally divided between defense and non-defense spending. While both parties agree the cuts may damage the recovery and hamper national security, neither side has moved to break the impasse as the deadline nears.

Obama spoke hours after the leaders of his 2010 deficit commission offered a $2.4 trillion plan to reduce the debt. The proposal by Democrat Erskine Bowles, President Bill Clinton’s former chief of staff, and Republican Alan Simpson, a former senator from Wyoming, would accomplish debt savings over 10 years in steps, rather than through one major piece of legislation.

Alternative Plan

Under their plan, one quarter of the deficit reduction would come from health-care changes, including lower payments to Medicare and Medicaid providers and higher Medicare premiums for top earners. Another quarter would come from a rewrite of tax laws that would scale back most exemptions and deductions. Part of the savings would be used for deficit reduction and the rest to reduce income tax rates.

The U.S. economy stalled during the last three months of 2012, marking the worst quarter since the recession ended three and a half years ago, as defense spending tumbled by the most since 1972. Without action by Congress, the across-the-board budget cuts set to begin next month represent another potential drag on the economy.

Senate Proposal

Administration officials said the White House would back a proposal advanced by Senate Democrats that would delay the automatic reductions by 10 months. Their alternative $110 billion plan would cut defense spending, end direct aid payments to farmers and set a minimum income-tax rate on top earners.

The president said he would insist on combining higher revenue through the tax code with spending cuts that won’t harm the economy, and cutting alone would hinder growth.

“Deficit reduction is not an economic plan,” he said.

To illustrate Obama’s point of the impact on local governments, 17 firefighters, emergency medical technicians and police officers from the Washington suburbs stood behind the president as he spoke.

Republican Stance

Republicans say they will stand firm in opposing any plan to avert the cuts that relies on revenue to close the budget gaps, and they have accused Obama of failing to offer specifics.

Senate Republican leader Mitch McConnell of Kentucky released a statement before Obama spoke, accusing the president of engaging in political posturing rather than negotiations.

“Today’s event at the White House proves once again that more than three months after the November election, President Obama still prefers campaign events to common-sense, bipartisan action,” McConnell said in an e-mailed statement.

Obama has said he wants to curb tax breaks for top earners and change the treatment of profits in buyout deals, known as carried interest. He’s also said he’s willing to work on trimming costs in the Medicare health insurance plan for the elderly by cutting payments to drug companies, raising premiums for the wealthy and changing medical reimbursement procedures.

The Congressional Budget Office estimates that the automatic cutbacks could subtract 0.6 percent from the gross domestic product’s growth this year, enough to eliminate 750,000 jobs.

Before it's here, it's on the Bloomberg Terminal.