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  • Dec 26, 2014
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US POLITICS: ANALYSIS

Threat of spending cuts a sign of Washington's political impasse

American leaders are once again playing political games over the budget, and with no deal in sight US$82 billion axe will fall in March

PUBLISHED : Friday, 22 February, 2013, 12:00am
UPDATED : Friday, 22 February, 2013, 2:48am

Fresh from a debt ceiling showdown and end-of-year fiscal cliff brinkmanship, US President Barack Obama and Republicans are now locked in a test of wills over huge budget cuts due to come into force in a matter of days.

The White House and independent analysts fear the so-called sequester could cost hundreds of thousands of jobs and crimp already slow economic growth. There is little hope in Washington that it can be averted.

The sequester, a multibillion-dollar package of spending cuts, was designed never to come into force. It is a measure of the political estrangement in Washington that it looks certain to do so. The idea was that the cuts would be so devastating to domestic spending favoured by Democrats and defence spending beloved of Republicans that they would have no choice but to reach a deal to cut the deficit .

But no deal is done and prospects of a last-minute agreement seem slim. So on March 1, cuts that will slash defence spending by US$55 billion and non-defence discretionary spending by US$27 billion this year look set to come into force.

"Republicans in Congress face a simple choice," Obama said on Tuesday. "Are they willing to compromise to protect vital investments in education and health care and national security and all the jobs that depend on them? Or would they rather put hundreds of thousands of jobs and our entire economy at risk just to protect a few special-interest tax loopholes to benefit only the wealthiest Americans and biggest corporations?"

Are they willing to compromise to protect vital investments in education and health care and national security and all the jobs that depend on them? Or would they rather put hundreds of thousands of jobs at risk just to protect a few special-interest tax loopholes to benefit only the wealthiest Americans and biggest corporations

Speaking for the Republicans, Speaker John Boehner shot back: "The president offered no credible plan that can pass Congress - only more calls for higher taxes." Obama's desire for more tax revenue was "a dead issue".

In a wider sense, the sequester is just the latest reflection of starkly differing political philosophies dividing Washington.

Republicans see bloated spending driving the economy to disaster. Obama won't allow social programmes to be decimated or support a budget that is balanced in a way that he says will hurt the middle class.

The cost of the sequester, if it unfolds, could be devastating in human and economic terms.

The Bipartisan Policy Centre in Washington estimates that one million jobs could be lost.

The Congressional Budget Office predicts that growth, already down by 0.1 per cent last quarter, could slip 0.7 per cent as government departments and related businesses stagger under the sequester's impact.

Obama, seeking to pressure Republicans into a deal, paints a dire picture after March 1.

"If Congress allows this meat cleaver approach to take place, it will jeopardise our military readiness," Obama said on Tuesday, warning that emergency workers could also be hampered and thousands of teachers could be laid off.

Defence Secretary Leon Panetta warned on Wednesday that almost all of the Pentagon's 800,000 civilian employees would face lay-offs from April.

The White House is approaching the deadline with confidence after Obama's re-election and triumph over Republicans in the fiscal cliff tax showdown.

Obama is proposing what he said is a "balanced" package of spending cuts and increases in revenue from closing tax cut loopholes in a "buy down" solution so Congress can come up with a long-term budget deal to end successive budget crises.

Republicans insist the rise in tax rates for the wealthy they conceded last year is all the revenue Obama is going to get. Some conservatives are relaxed about the sequester - as their focus is purely on cutting spending. But Boehner wrote in The Wall Street Journal on Wednesday it was an "ugly and dangerous" way to cut the deficit. "Mr President, we agree that your sequester is bad policy. What spending are you willing to cut to replace it?"

 

 

The politics seems to favour the president - he is more popular than Republicans and polls show voters like the idea of more taxes for the rich. But if the sequester is not fixed and the economy is hurt, Obama's presidential legacy could be on the line.

Additional reporting by Associated Press

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