Liz Farmer is a GOVERNING finance writer.E-mail: firstname.lastname@example.org
President Barack Obama is urging Congress to postpone the Mar. 1 sequestration through a combination of spending cuts and closing tax loopholes, rather than risk the automatic 10 percent budget cuts that are scheduled to go into effect next month if no action is taken.
Obama said Tuesday such a smaller package would be intended “not to kick the can down the road, but to give [Congress] time to work together on a plan that finishes the job of deficit reduction in a sensible way.”
Obama’s spokesman Jay Carney later painted the postponement as a tool to allow Congress focus on the “regular budgetary process” and revisit sequestration at the end of the year after a 2014 budget is in place. Obama has said he expects to submit his budget to Congress by mid-March; the legislated deadline for the budget was Feb. 4.
The president’s remarks came in a White House briefing room address just 10 days before roughly $85 billion in automatic spending cuts are set to take effect. Under sequestration, the government would cut another $109 billion per year for the next eight years, totaling $960 billion. An additional $216 billion in savings comes from lower interest payments, pushing the total in reductions to $1.2 trillion. The cuts were originally set to kick in on Jan. 1, but lawmakers reached a deal that day that included an income tax hike on the wealthiest Americans and delayed sequestration until Mar. 1.
Obama called the sequestration cuts “wholly unnecessary,” noting that they were originally set up in 2012 as a deterrent to deadlock and thus created by “partisan recklessness and ideological rigidity.”
“It seems like every three months around here there’s some manufactured crisis,” Obama said. “We’ve got more work to do than to dig ourselves out of these self-inflicted wounds.”
Still, earlier this month, the Congressional Budget Office’s chief warned that delaying budgetary decisions could worsen the nation’s current debt load of about $16 trillion and prolong uncertainty for state and local governments. At a Feb. 6 briefing detailing the CBO’s latest economic projections, Director Douglas Elmendorf said if lawmakers seek to change policy in a way that delays cuts or extends tax breaks, “as they have been prone to in the past,” the projected debt burden of $26 trillion in 2023 could be even larger.
“If we resolve policies now to give them time to be implemented, that gives households, businesses, and state and local government time to plan [ahead],” Elmendorf said.
Meanwhile, anything that worsens the nation’s debt load is likely to have a negative effect on Uncle Sam’s credit rating. That, in turn, could affect the ratings of some states (Maryland, New Mexico, South Carolina, Tennessee and Virginia) that have economies more closely tied in with the federal government. Moody’s Investors Service on Tuesday issued a credit outlook report noting that the ratings agency would will reassess the federal rating of Aaa negative throughout the course of this year as budget changes go into effect. The report noted, however, that “further measures are required to ensure a downward debt trajectory,” and thus a better credit rating.
Also on Tuesday, two key deficit experts offered up their own plan to reduce deficit spending by $2.4 trillion over the next decade. Pitched by former President Bill Clinton's chief of staff Erskine Bowles and former Republican senator Alan Simpson, one-quarter of the cuts would come from healthcare reforms and another quarter would be via tax reform. Offered up as an alternative to sequestration, Simpson and Bowles said Tuesday they doubted the White House and Congress would reach an agreement to avoid the Mar. 1 cuts. Carney on Tuesday said the White House was reviewing the plan.
Some, including Obama, have speculated that lawmakers are at such an impasse that the more conservative members of Congress would rather see the sequestration cuts kick in than reach a different deal. Indeed, whether even a small-scale solution can be reached on Capitol Hill in the next 10 days remains to be seen. Last week, Republican Senator Thad Cochran called a plan issued by Senate Democrats that proposed $27.5 billion in savings and cuts from the agriculture sector and another $27.5 billion from defense “unfair and unfortunate.” The package “falls squarely on the backs of our defense and agriculture sectors,” the Mississippi lawmaker said.
Meanwhile, Obama at Tuesday’s briefing accused Republicans of reducing the nation’s deficit solely on the backs of the middle class.
“So far at least what they’ve expressed is a preference they’d rather have these cuts go into effect than close a single tax loophole for the wealthiest Americans – not one,” he said.
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