WASHINGTON/NEW, YORK – President Barack Obama and congressional Republicans on Friday failed to find a compromise that would have blocked an $85 billion budget reduction. As a result, spending cuts will now start to hit the U.S. military and a vast array of other government programs.
Both Obama and the Republican leaders in the House and Senate declared themselves still deadlocked after a last-minute White House meeting. The two sides are at odds over the president’s insistence on increasing tax revenue as part of any plan for attacking the country’s $16.6 trillion indebtedness.
Obama signed an order authorizing the cuts Friday night, officially enacting the across-the-board reductions. Under the law, he had until midnight.
Obama and the Republican leadership have been battling over that issue since the opposition party regained a majority in the House of Representatives more than two years ago. The crude, across-the-board budget reductions were conceived in 2011 to be so unattractive that both sides would be forced to find a better deal. but they have not, despite two years to find a compromise.
The $85 billion in cuts apply to the remainder of the 2013 fiscal year, which ends Sept. 30. But the legislation that requires the spending reduction will continue slashing government spending by about $1 trillion more over a 10-year period.
“Let’s be clear. None of this is necessary,” the president said after the White House meeting. “It’s a choice Republicans in Congress have made” to avoid closing tax loopholes that benefit the wealthy. He said “the pain will be real” for the American people, but added that the cuts aren’t “the apocalypse, they’re just dumb.”
Republican House Speaker John Boehner walked out of the meeting to say there would be no compromise as long as Obama insisted on higher tax revenue. Republicans are standing fast against further increasing taxes and will not compromise on achieving debt reduction through spending cuts alone. The opposition party is still feeling the sting from its most conservative members after agreeing at the end of 2012 to allow the expiration of tax cuts under President George W. Bush for Americans earning $400,000 or more a year.
Friday’s meeting was the first the two sides have held this year on the budget battle, and it lasted less than an hour. Asked whether he couldn’t get the parties in a room and stay there until they reach a deal, Obama said, “I can’t have Secret Service block the doorway.”
Earlier, the Dow Jones industrial average moved closer to an all-time high, as improving economic sentiment overrode concerns about the looming cuts.
The Dow closed Friday at 14,089.66, up 0.64 percent for the week, and was within striking distance of the all-time record of 14,164.53.
Some analysts expected the Dow to break the all-time record soon, potentially this week.
Some economists say the cuts could shave 0.5 percent from economic growth. Yet the market’s upward move suggested it agreed with those who stressed that they amount to just 2.4 percent of the federal government’s $3.5 trillion budget.
The sequestration, as the cuts are called, “does not mean the end of the world,” said Hugh Johnson, chairman and chief investor officer at Hugh Johnson Advisers.
The cuts are just the first of a series of budget crises that will confront Congress and the White House in the coming weeks.
Next is a possible government shutdown. The annual ritual of passing agency spending bills collapsed entirely last year, and Congress must act by March 27 to prevent the partial shutdown.
Obama and the Republicans indicated a willingness to find common ground on that issue.
Boehner said the House will pass legislation this week to extend routine funding for government agencies beyond the current March 27 expiration. “I’m hopeful that we won’t have to deal with the threat of a government shutdown while we’re dealing with the sequester at the same time,” he said.
Obama said he, too, wants to keep the two issues separate.
In May, Congress will confront a renewed standoff on increasing the government’s borrowing limit — the same issue that, two years ago, spawned the law forcing the current spending cuts in the first place.
Failure to raise the borrowing limit could force the U.S. to default on debt for the first time in history.
The immediate impact of the spending cuts on the public was uncertain.
The Pentagon will absorb half of the $85 billion required to be sliced between now and the end of the budget year on Sept 30, exposing civilian workers to furloughs and defense contractors to possible cancellations.
The administration also has warned of long lines at airports as security personnel are furloughed, of teacher layoffs in some classrooms and adverse impacts on maintenance at the nation’s parks. One military aircraft carrier’s tour of duty to the Persian Gulf has been delayed.
Due to the looming budget cuts the Homeland Security Department in recent weeks has released from its jails more than 2,000 illegal immigrants facing deportation and plans to release 3,000 more during March, according to newly disclosed figures, cited in internal budget documents.
The president told reporters the effects of the cuts will be felt only gradually. “The longer these cuts remain in place, the greater the damage to our economy — a slow grind that will intensify with each passing day,” Obama said.
Click to enlarge