WASHINGTON — President Barack Obama on Tuesday 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 president acknowledged that a broader budget agreement is unlikely to be reached by the March deadline, when the cuts to domestic and military programs will take effect. The automatic cuts are known as a “sequester” in government budget language.
The March 1 deadline marks another fiscal showdown between the administration and congressional Republicans, who have a majority in the House. 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, R-Ohio, said Tuesday in a statement.
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.
After the 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 thisyear.
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, but lawmakers delayed them for two months in a Jan. 1 measure that let tax rates riseon top incomes.
Democrats were debating alternatives for replacing the spending cuts during a private retreat Tuesday in Annapolis, Md. Senate leaders, including Patty Murray of Washington, chairman of the Budget Committee, and Appropriations Committee Chairman Barbara Mikulski of Maryland were to 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.
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 of Nevada said Jan. 29 that Democrats would discuss the cuts at the retreat.
“There are many lowhanging pieces of fruit out there that Republicans have said they agreed on previously,” Reid 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. Sen. Carl Levin, D-Mich., has suggested corporate tax changes that would limit companies’ ability to shift profits outside the U.S.
Republicans say they won’t accept any tax increase, let alone corporate changes that 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,” Sen. Mitch McConnell of Kentucky, the Republican leader, said Monday on the Senate floor. “So to focus on a tax of any kind is to miss the point entirely.”
In an interview Tuesday on Bloomberg Television, House Majority Leader Eric Cantor, R-Va., 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,” he said.
Boehner and House Budget Committee Chairman Paul Ryan, R-Wis., have said they expect the full spending cuts to take effect.
Eager to avoid the cuts to military spending, House Republicans have proposed different spending reductions, which Obama and Democrats say would be harmful to important domestic programs.
“Republicans have twice voted to replace these arbitrary cuts with commonsense cuts and reforms that protect our national defense,” Boehner said in a statement Tuesday. “The president’s sequester should be replaced with spending cuts and reforms that will start us on the path to balancing the budget in 10 years.”
Administration officialshave been saying for weeks that the looming cuts have already had an impact on the nation’s economy. White House officials say the sequester was intended to force a more “balanced” set of deficit-reduction measures.
They say the cuts passed by the House do not meet that test. And they said the automatic cuts would have serious effects on the services provided to some of the neediest citizens.
“While we need to deal with our deficits over the long term, we shouldn’t have workers being laid off, kids kicked off Head Start, and food-safety inspections cut while Congress completes the process,” a White House official said.
The White House has also been aggressively warning about the dangers of the automatic cuts to military readiness. Leon Panetta, the departing secretary of defense, said on Sunday’s talk shows that the country’s security would suffer if they went into effect.
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 Rep. James Lankford, R-Okla.,
The measure, known as a continuing resolution, would fund the government through Sept. 30 at about $974 billion, Lankford said in an interview Monday. “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.
“This was supposed to be the day that the president submitted his budget to the Congress, but it’s not coming. It’s going to be late,” Boehner said in remarks on the House floor. “That’s too bad. Our economy could use some presidential leadership right now.”
Obama will send his fiscal 2014 spending proposal in mid-March, according to a budget official.
Information for this article was contributed by Heidi Przybyla, Roger Runningen, Roxana Tiron, Richard Rubin, Tony Capaccio and Julianna Goldman of Bloomberg News; by Michael D. Shear and Jackie Calmes of The New York Times; and by Jim Kuhnhenn and Andrew Taylor of The Associated Press.
Front Section, Pages 1 on 02/06/2013