Today, President Obama urged Congress to prepare a plan for short-term spending cuts and revenue increases to avoid about $85 billion in across-the board cuts (sequestration) to the FY2013 budget scheduled to go into effect on March 1, 2013.
Sequestration cuts of $109 billion for FY2013 were originally set to be implemented on January 2, 2013. However, the “American Taxpayer Relief Act” (signed on January 2, 2013) delayed implementation until March 1, 2013. The Act also reduced the FY 2013 sequestration amount by enacting budget deficit reductions of $24 billion through spending cuts and new revenues from rule changes on converting Individual Retirement Accounts (IRA’s).
Speaking at the White House, the president said a short term fix would give Congress and the administration more time to hammer out a long-term solution for the over $1 trillion in additional deficit reductions required over a 10-year period. To date $2.6 trillion in deficit reduction has been enacted towards the $4 trillion 10-year goal.
President Obama said he still wants Congress to agree to a bigger deal on spending cuts and tax reforms as an alternative to sequestration. However, if such a deal cannot be reached before the March 1 sequester deadline, Obama wants Congress to “at least pass a smaller package that would delay the economically damaging effects of a sequester for a few more months.” The president did not identify specifics of a plan or put a dollar figure or time frame on the short-term cuts he would accept.
It is not clear if the president’s statement will spark renewed congressional interest in acting before March 1. There are still stark differences between Republicans and Democrats on what a long-term solution or even a short-term fix would look like. Republicans have repeatedly said that Congress has already acted on taxes so more tax increases can not be a part of the solution, while Democrats argue that increased revenue from tax reforms must be part of the solution. On spending, Republicans argue for reducing entitlement costs by enacting sweeping entitlement reform, but Democrats are resisting broad entitlement reform.
Given the continuing gridlock and the fast approaching deadline, a growing number of members of Congress seem to be resigned to sequestration. Some are telling their constituents to prepare for the coming across-the-board cuts. House Budget Committee chair Rep. Paul Ryan (R-KS) told NBC’s “Meet the Press” in January that he believes sequestration will happen.
Meanwhile, the Office of Management and Budget (OMB) has directed federal agencies to begin preparing for the prospect of significant reductions to the FY2013 budget by freezing hiring, terminating temporary employees, and cutting nonessential spending. The Office of Personnel Management (OPM) has issued guidance to agencies on “administrative furloughs” should they become necessary. Even DoD Secretary Panetta, perhaps the administration’s most vocal critic of the “devastating” effects of sequestration, has said DoD has no choice but to prepare for sequestration to protect core defense missions.