Obama Warns on Effects of Sequestration
Published: Friday, March 1st 2013
Barack Obama prepared the US for a lengthy fiscal crisis and a weaker economy, saying it could take months for the White House and Congress to reach a deal to reverse sweeping automatic budget cuts that were ushered in on Friday.
The US president spoke from the White House after a summit with congressional leaders ended without any last-minute agreement to stop sequestration - cuts worth $85bn through the end of September and $1.2tn over a decade.
The crisis over sequestration is the latest chapter in a long-running political battle over US fiscal policy, including a brush with a US debt default in August 2011 and January's agreement to prevent huge tax hikes from hitting the US economy.
Mr Obama said he hoped Republicans would still come around to his view that new revenue from curbing tax breaks for the wealthy should be part of a package to replace the across-the-board cuts, which he called "dumb" and "arbitrary".
But he suggested such a change of heart was unlikely near term.
"It may take a couple of weeks. It may take a couple of months. But I'm just going to keep on pushing on it. And my view is that ultimately common sense prevails."
The president warned the US economy and many middle-class Americans would suffer some damage. "I don't anticipate a huge financial crisis. But people are going to be hurt. The economy will not grow as quickly as it would have. Unemployment will not go down as quickly as it would have," Mr Obama said. "Every time we get a piece of economic news, we'll know it could have been better if not for Congress' failure to act."
Economists have said the cuts could shave more than 0.5 percentage points off US growth this year, as spending is cut across government agencies, with half the reductions hitting the Pentagon budget. More than 1m civilian federal workers could be furloughed starting in April.
In January's deal over the so-called fiscal cliff, Republicans agreed to raise income tax rates on households earning more than $450,000 per year, but insist that they will no longer countenance any new revenue for deficit reduction.
"This discussion about revenue, in my view, is over. It's about taking on the spending problem here in Washington" said John Boehner, Republican Speaker in the House of Representatives, in the driveway of the White House after the meeting with Mr Obama.
Congress faces a new deadline of March 27 to renew funding for the government, which if left unsolved would lead to a partial shutdown of federal agencies in addition to the sequestration cuts.
But congressional leaders and the White House appear to have agreed that at the very least they need to find common ground on averting such a shutdown and a deeper budget crisis, even if the cuts stay in place.
The House will press ahead with its version of such legislation next week.
Copyright The Financial Times Limited 2013