US set for steep budget cuts
Washington, March 2, 2013
The US government stumbled headlong yesterday towards wide-ranging spending cuts that threaten to hinder the nation's economic recovery, after President Barack Obama and congressional leaders failed to find an alternative budget plan.
The inflexible plan, locked in during a bout of deficit-reduction fever in 2011, initiates time-released cuts that can only be halted by agreement between Congress and the White House.
A deal proved elusive in talks at the White House yesterday, meaning that government agencies will now begin to hack a total of $85 billion from their budgets between now and October 1.
Democrats predict these cuts could soon cause air traffic delays, furloughs for hundreds of thousands of federal employees and disruption to education and law enforcement.
The full brunt of the automatic cuts will be borne over seven months, and Congress can stop them at any time if the two parties agree on how to do so.
But Obama was resigned to budgets shrinking. "Even with these cuts in place, folks all across this country will work hard to make sure that we keep the recovery going, but Washington sure isn't making it easy," he said after meeting Republican and Democratic congressional leaders.
Given the absence of a deal, Obama was required by midnight to issue an order to federal agencies to reduce their budgets in a process known as "sequestration."
In coming days, federal agencies are likely to issue 30-day notices to workers who will be furloughed.
"Not everyone will feel the pain of these cuts right away. The pain though will be real. Beginning this week, many middle class families will have their lives disrupted in significant ways," Obama said.
Democrats insist the solution include bringing in additional revenue through closing what they call tax loopholes that largely benefit the wealthy and US corporations. Republicans reject this approach. "The discussion about revenue, in my view, is over. It's about taking on the spending problem," House of Representatives Speaker John Boehner said on leaving the meeting.
The International Monetary Fund warns that US economic growth could be slowed by 0.5 of a percentage point this year.
The non-partisan Congressional Budget Office predicts 750,000 jobs could be lost in 2013 and federal employees throughout the country are looking to trim their own costs.
In the absence of any deal at all, the Pentagon will be forced to slice 13 per cent of its budget between now and September 30. Most non-defence programmes, from NASA space exploration to federally backed education and law enforcement, face a 9pc reduction.
Both sides still hope the other will either be blamed by voters for the cuts or cave in before the worst effects predicted by Democrats come into effect.
No matter how Obama and Congress resolve the 2013 battle, this round of automatic spending cuts is only one of a decade's worth of annual cuts totalling $1.2 trillion mandated by the sequestration law.-Reuters