Obama proposes short-term budget fix to delay spending cuts

WASHINGTON (Reuters) - President Barack Obama will propose on Tuesday that Congress pass a small package of spending cuts and tax reforms to delay larger, automatic cuts from going into effect and give Washington more time to agree on a broader budget deal.

Republican House of Representatives Speaker John Boehner largely rejected Obama's proposal in advance.

Huge cuts to defense and domestic programs are slated to go into effect in roughly three weeks, a threat that has caused uncertainty and could hurt economic growth.

Obama welcomed efforts in the House and the Senate to come up with a budget that would address the U.S. fiscal challenges, but time was short to get that done, a White House official said.

"Given that the budget process in Congress won't likely be completed by March 1st, the president on Tuesday will call on Congress to pass a smaller package of spending cuts and tax reforms to avoid the economically harmful consequences of the sequester for a few months," the official said. "Sequester" is the term for the automatic spending cuts.

The official said such a move would "allow Congress more time to reach a solution that permanently avoids the sequester and significantly reduces the deficit in a balanced way."

Obama will speak at 1:15 p.m. EST (1815 GMT).

The White House and Congress agreed on a deal at the beginning of this year that avoided the "fiscal cliff" of spending cuts and tax increases by raising tax rates on households making more than $450,000 a year.

The deal put off the huge spending cuts for just two months, however, and Obama is eager to give both sides more time to resolve that issue.

If launched on March 1 as scheduled, the cuts would reduce federal spending across the board by about $85 billion for one year, split evenly between military and domestic programs. The total through 2022 would be about $1.2 trillion.

The Republican-controlled House last year passed two measures that sought to replace the sequester cuts and shield military spending by shifting the burden onto domestic programs, including many that serve the poor, such as Medicaid, food stamps and social services block grants that fund programs like Meals on Wheels. The measure was never taken up in the Democratic-controlled Senate.

Boehner said the sequester policy stemmed from Obama and rejected the idea of increasing tax revenue in a future deal.

"President Obama first proposed the sequester and insisted it become law," he said in a statement.

"We believe there is a better way to reduce the deficit, but Americans do not support sacrificing real spending cuts for more tax hikes. The president's sequester should be replaced with spending cuts and reforms that will start us on the path to balancing the budget in 10 years," he said.

ECONOMIC PAIN

Obama's statement is the latest in a series of moves to outline his policy agenda before his State of the Union address on February 12. The president has recently made trips outside of Washington to promote proposals to reform immigration and reduce gun violence.

Obama's push for a short-term deal to avoid the sequester comes after a sharp drop in defense spending helped cause U.S. economic output to shrink at the end of last year. The White House has attacked Republican leaders for threatening to use the sequestration deadline as a bargaining chip to obtain cuts to government retiree and healthcare programs.

White House spokesman Jay Carney last week said the sharp drop in defense outlays was caused in part by uncertainty over whether the spending cuts, which would hit defense and non-defense programs in equal measure, would go into effect.

The U.S. economy contracted by 0.1 percent in the last three months of 2012 on the deepest plunge in defense spending in 40 years.

"Achieving targeted spending reductions and revenue increases to reduce the deficit would be preferable to the sequester, which was created as a forcing event rather than as itself an attractive policy," said Joseph Minarik, a former White House budget office economist now with the Committee for Economic Development, a think tank.

"The president is asking the Congress to begin the process of finding a sustainable long-term path for the budget, but doing that without ... the deadlines that have caused a great deal of anxiety in the financial markets."

(additional reporting by Steve Holland and David Lawder; Editing by Philip Barbara)

Source: http://news.yahoo.com/obama-propose-short-term-package-put-off-spending-154659725--business.html

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