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Obama Says Cuts to Be `Slow Grind' on U.S. Economy
President Barack Obama said the automatic spending cuts set to kick in today will be a "slow grind" on the economy and that it may take weeks to win over enough lawmakers from both parties to reach a deal on a replacement deficit-cutting plan.
Obama, speaking after meeting with top four congressional leaders for less than an hour at the White House, said an agreement will be reached once members of Congress hear from voters feeling the pinch of cutbacks in government programs.
"There is a caucus of common sense up on Capitol Hill," Obama said. "It's a silent group right now, and we want to make sure that their voices start getting heard."
Obama and House Speaker John Boehner, an Ohio Republican, indicated they would seek to avoid another showdown later this month over funding federal operations for the rest of the year so Congress won't have to deal with the risk of a government shutdown while negotiating an agreement on cutting the deficit.
Democrats and Republicans are in a standoff over how to replace the cuts, known as sequestration, totaling $1.2 trillion over nine years. Of that total, $85 billion would occur in the remaining seven months of this fiscal year. The effective reductions would be about 13 percent for defense programs and 9 percent for non-defense programs, according to the Office of Management and Budget.
Boehner Responds
Boehner left the White House saying Republicans won't budge from their rejection of raising tax revenue again as part of the negotiations on sequestration.
"The president got his tax hikes on Jan. 1," Boehner said, referring to the deal at the end of last year that let income tax rates rise for top incomes. "The discussion about revenue, in my view, is over."
Boehner also said the House will vote next week on legislation to fund the government through the Sept. 30 end of the fiscal year. The current funding authorization runs out March 27.
Obama said he'll sign the measure if it reflects previous agreements on funding. "There's no reason why we should have another crisis by shutting the government down in addition to these arbitrary spending cuts," the president said.
House Democratic leader Nancy Pelosi of California, who was at the White House meeting, was noncommittal about whether her party would support Boehner's funding plan. "Certainly we don't want to have a shutdown of government," she said.
Tax Revision
Obama has urged replacing sequestration with a combination of reduced spending, including in entitlement programs, and higher revenue from closing loopholes in the tax code for the wealthiest Americans.
Pelosi said House Democrats are prepared to consider ways to reduce spending for Medicare, Social Security and other entitlement programs as long as the cuts are "balanced" by eliminating tax preferences because there's "big money there" for debt reduction.
"We want to see movement" by Republicans "in terms of their sacred cows -- tax giveaways for special interests" and "excessive deductions for the wealthiest people in our country," she said at the Capitol.
Lowering Rates
Republicans would be willing to close tax loopholes, though not to replace spending cuts, Boehner's office said. Instead, he and Senate Republican Leader Mitch McConnell of Kentucky say any new tax revenue to be used to lower tax rates.
"I will not be part of any back-room deal and I will absolutely not agree to increase taxes," McConnell said in a statement.
Democrat Harry Reid of Nevada, the Senate majority leader, joined Pelosi, Boehner and McConnell at the meeting with Obama.
Obama is scheduled to order federal departments and agencies later today to begin cutting their budgets. The administration has warned that the across-the-board cuts, split between defense and domestic programs, threaten to eventually send poor children home from pre-school, prolong airport security wait times, reduce unemployment benefits and furlough defense workers.
"Not everyone will feel the pain of these cuts right away," Obama said today. "I don't anticipate a huge financial crisis, but people are going to be hurt."
While private and government economists have said the cuts may trim growth if they stay in place, investors have signaled they aren't concerned about the impact on the $15.8 trillion U.S. economy.
Market Outlook
The Standard & Poor's 500 Index (SPX) has risen 6.4 percent this year and the dollar led gains in world markets last month.
The S&P index gained 0.3 percent to 1,518.41 at 4 p.m. in New York, after dropping as much as 0.9 percent earlier as consumer confidence increased and manufacturing grew at the fastest pace since June 2011. The Dollar Index, which tracks the currency against six U.S. trading partners, climbed 0.4 percent.
"A couple economic data points are reminding the market that the sequestration is an issue, it's an issue that was known, but the underlying fundamental data continued to improve slightly," Andres Garcia-Amaya, New York-based global market strategist at JPMorgan Chase & Co.'s mutual funds unit, which oversees $400 billion in assets, said in a phone interview.
Positive Signs
The political showdown is occurring amid signs the economy is on solid footing.
Manufacturing in the U.S. expanded at a faster pace than forecast in February, reaching the highest level since June 2011, the Institute for Supply Management's factory index showed today. The Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 77.6 last month from 73.8 in January, which may indicate a boost in consumer spending.
Both sides continued arguing their cases after the White House meeting ended. The speaker's office said in a statement that Boehner told Obama in the meeting that Democrats should produce a plan to replace the spending cuts "that can actually pass" the Senate.
Obama said he's offering a "fair deal" on the budget and one that has the support of the majority of Americans. The Republican alternative plan would impose "even worse arbitrary cuts" to the budget and that wouldn't help the economy.
With the spending cuts "the economy will not grow as quickly as it would, unemployment will not go down as quickly as it would have," he said.
Obama said he can't lock both parties in a negotiating session until a deal is struck.
"I am not a dictator; I'm the president," Obama said. If McConnell and Boehner want to leave town without a deal, "I can't have Secret Service block the doorway."
After he and his Cabinet officers have used the past week to warn of the impact from the cuts, including flight delays, curtailed border crossings for goods and fewer meat inspectors, Obama sought to moderate the alarms.
"We will get through this," he said. "This is not going to be an apocalypse."
To contact the reporters on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net; Roxana Tiron in Washington at rtiron@bloomberg.net
To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net
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Obama Says Spending Cuts Will Be 'Slow Grind' on Economic Growth
President Barack Obama speaks to reporters in the White House briefing room in Washington, on March 1, 2013, following a meeting with congressional leaders regarding the automatic spending cuts.
President Barack Obama speaks to reporters in the White House briefing room in Washington, on March 1, 2013, following a meeting with congressional leaders regarding the automatic spending cuts. Photographer: Carolyn Kaster/AP Photo
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March 1 (Bloomberg) -- U.S. House Speaker John Boehner, a Republican from Ohio, talks about his opposition to tax increases as part of a plan to avoid across-the-board federal spending cuts that start today. Boehner spoke to reporters after a meeting with President Barack Obama at the White House. (Excerpts. Source: Bloomberg)
