Business | Economy

White House fears deep damage from spending cuts

The US military says it may have to skip the Paris air show this year for the first time because of the cuts

  • AFP
  • Published: 14:59 February 9, 2013
  • Gulf News

  • Image Credit:

Washington: The White House warned on Friday that billions of dollars in automatic budget cuts set to kick in on March 1 were a “blunt” instrument that could wreak deep damage to the already fragile US economy.

In the latest and most vehement warning over the impending cuts to domestic and defence spending - known as the “sequester” - officials painted a grim picture, as Democrats and Republicans squabbled over who was most to blame.

The White House issued a doom-laden survey of sequestration impacts, saying 10,000 teacher jobs were at risk, food inspections could stop, 373,000 mental health patients would lose treatment and prosecutors could be furloughed.

The FBI would have 1,000 fewer officers, small business loans would be cut by $540 million, and around 600,000 women and children could lose government-funded emergency nutrition, according to the White House.

President Barack Obama meanwhile warned that sequestration would hit US military readiness, saying “there is no reason for that to happen.”

“Putting our fiscal house in order calls for a balanced approach, not massive, indiscriminate cuts that could have a severe impact on our military preparedness,” he said.

The US military says it may have to skip the Paris air show this year for the first time because of the cuts, and the Navy has already halted the deployment of the aircraft carrier Harry S Truman to the Gulf.

The sequester was agreed by the president and Congress to be so punishing that it would force Washington’s warring political factions to forge an agreement on a way to cut the US budget deficit.

But amid partisan gridlock, no agreement on cutting the deficit has been reached and cuts due in March will slash defence spending by $55 billion and non-defence discretionary spending by $27 billion this year.

The White House said Friday that the cuts would amount to nine percent of spending for non defence programs and 13 percent for defence.

The Bipartisan Policy Centre has said that a million jobs will be lost by the end of next year caused by a slowdown brought on by the cuts.

“Sequester is a blunt and indiscriminate instrument that poses a serious threat to our national security, domestic priorities and the economy,” said Danny Werfel, the federal controller of the Office of Management and Budget.

“It does not represent a responsible way to achieve deficit reduction.”

Jason Furman, principal deputy director of the National Economic Council, warned that the sequester would also have long-term economic impacts.

“We got a tiny bit of a preview of what that might look like in the fourth quarter GDP numbers, where GDP contracted because of a large contraction in defence spending that was, at least in part, due just to fears about the sequester before it even started to hit,” he said.

The Commerce Department reported at the end of January that the US economy shrank at an annual rate of 0.1 percent in the fourth quarter of 2012.

Republicans shared the White House view that the sequester cuts could be devastating, but said Obama was not serious about alleviating the problem.

They also complained that the president, who succeeded in implementing his 2012 campaign promise of raising taxes on the rich during the “fiscal cliff” showdown in December, was not now prepared to countenance cuts to spending.

“We’ve twice passed legislation to replace (the sequester) with common sense cuts and reforms,” said Brendan Buck, a spokesman for House Speaker John Boehner.

“We’re glad they’re laying out the devastating consequences of the president’s sequester, but the question remains: what are they willing to do to prevent it?”

Obama has proposed a stop gap solution of tax reforms that would raise revenues partly by closing loopholes which benefit the wealthy and also include targeted spending cuts, to give Congress more time to reach a deficit deal.

But Republicans reject any deal that will mean more tax hikes.

Republicans also tried to pin the blame for the sequester on the president, debuting the hashtag #Obamaquester on Twitter, and renewing their charge that the device was the president’s idea.

Obama aides argue that since both chambers of Congress voted to endorse the sequester, and the president signed it into law, both sides share blame.

“The notion much propounded by the spin doctors on the Republican side that the sequester is somehow something that the White House or the President alone wanted or desired is a fanciful confection,” said Obama spokesman Jay Carney.

“I understand that it’s a convenient bit of spin but it’s also a lot of baloney.”

Gulf News
Retail Gold Rate
Business Editor's choice
Quick Access

  1. Markets

  2. Economy

  3. Property

  4. Aviation

Business Top Stories

  1. Samsung, LG unveil new smartwatches

  2. Malaysia Airlines cleared for radical revamp

  3. Qantas bullish on Emirates partnership

  4. Philippine economy grows by 6.4%

  5. Microsoft CEO to visit China amid probe