Sequester: No deal

Sequester: No deal in sight on automatic US budget cuts

BBC,

1 March, 2013, 4.30 am GMT

The US Congress has adjourned for the weekend without having reached a deal to avert steep automatic budget cuts.

The cuts, worth $85bn (£56bn), are due to take effect on Friday. Democrats and Republicans are blaming each other for the deadlock.

President Barack Obama has invited congressional leaders to the White House for negotiations.

Mr Obama warned that the cuts will harm the economy. The IMF said they could have a global impact on growth.

On Thursday budget bills from both parties were defeated in the Senate, and a top Republican said the House would wait for Senate action.

The president accused Senate Republicans of allowing the cuts to proceed rather than "closing a single tax loophole that benefits the well-off and well-connected".

"They voted to let the entire burden of deficit reduction fall squarely on the middle class," he said in a statement on Thursday.

'Tumble downward'

Split roughly evenly between military and domestic programmes, the cuts total $85bn this fiscal year and $1.2tn over the next decade.

Known as the sequester, they were designed in 2011 to encourage negotiations on the deficit. Analysts say they were never intended as a deficit reduction tool.

But attempts to find savings over 10 years, whether through budget cuts or tax rises, have failed since then.

The cuts are scheduled to be worked into the federal budget by 23:59 local time on Friday (04:59 GMT on Saturday).

The Senate on Thursday failed to pass two separate plans to halt the cuts and replace them with other deficit reduction measures.

A Senate Democratic plan blocked by Republicans proposed nearly $30bn in future cuts in defence spending and a minimum tax rate on incomes exceeding $1m.

Senate Republicans, meanwhile, proposed maintaining the overall level of reductions but giving Mr Obama power to redistribute them. That measure was rejected by a vote of the full Senate.

Democrats hold a majority in the Senate but Republicans used a parliamentary manoeuvre to block a vote on the Democratic bill.

Also on Thursday, Republican House Speaker John Boehner said the House had already passed bills to avert the cuts and said the House would not be moving any further legislation until the Senate acted.

"We've laid our cards on the table," he said.

The proposals by the Republican-controlled House included many measures unlikely to pass the Democrat-controlled Senate.

Mr Boehner and House Democratic leader Nancy Pelosi, as well as the Senate's Democratic majority leader Harry Reid and Republican minority leader Mitch McConnell, are due to attend the White House talks on Friday.

Next budget battle

White House spokesman Jay Carney said there were "no preconditions" on what could be discussed in the meeting.

Republicans and Democrats are at an impasse over major issues, with Republicans refusing to allow tax rises and Democrats vowing to protect cherished social programmes.

Meanwhile, Congress is just weeks away from its next budget battle.

On 27 March a temporary budget that has kept the federal government running since the last budget ran out is due to expire.

Failure by Congress to enact a new stop-gap budget could see parts of the federal government shut down.

House Republicans said they would vote on a bill next week to fund the government through the end of the fiscal year but keep in place some automatic cuts taking effect on Friday.

Meanwhile the International Monetary Fund said the global economic recovery could be harmed by the automatic spending cuts,

"We will see what happens on Friday, but everybody is assuming that sequestration is going to take effect," IMF spokesman William Murray said.

"What it means is that we are going to have to re-evaluate our growth forecasts for the United States and other forecasts," he added.

"NATO and the United States should change their policy because the time when they dictate their conditions to the world has passed," Ahmadinejad said in a speech in Dushanbe, capital of the Central Asian republic of Tajikistan

United States of austerity: America is facing an uncertain future

Increasingly partisan infighting on Capitol Hill has seen the deadline to avert $85bn in automatic budget cuts pass without accord

the Independent,

28 February, 2013

The munificence of Uncle Sam may suddenly be diminished as of late tomorrow night when a slew of painful and indiscriminate government spending cuts are due to come into effect. America, land of the free-spenders, is about to get its first taste of European-style austerity.

A product of the failure of Democrats and Republicans to agree on a prescription to cure the country’s deficit disease, the cuts – $85bn by the end of this year and $1.2trn over 10 years – are due officially to come into effect at midnight tomorrow. No one wants them; no one seems to know how to avert them. A nation has been left to stumble blindly into unknown fiscal territory.

For its part, the International Monetary Fund warns that, if fully implemented, the reductions will trim about half a percentage point off the country’s economic growth rate in 2013. All across the US, interest groups and industries are warning of particular areas of calamity. Farmers, for instance, are predicting the “first widespread shortage” of meat, poultry and eggs in decades because of cuts to food inspection teams.

The impact will not become clear all at once but, without a political truce soon, it may quickly become unmistakable. Exempt are welfare programmes for the poor and vulnerable and military salaries. But everywhere else, government will be forced to pare back on budgets. First to feel the brunt may be federal workers who will be asked to take furloughs – periods at home without pay – starting 30 days from today.

But the list of potential victims is much longer, particularly in the defence sector, because half of the cuts will fall on the Pentagon. The industry warns that the reductions – known as the “sequester” – will end up costing 2 million jobs. Among others are airports where security screeners and air traffic controllers could be culled, the medical research community where funding is likely to dwindle and national parks where money for rangers will be slashed. Glacier National Park in Montana says snow ploughing to clear its famous Going-to-the-Sun Road may not happen this summer.

“It will be like watching a multiple-car pile-up on the highway that’s going in slow motion,” Emily Holubowich, a healthcare lobbyist who has being trying to steer Congress away from the brink on behalf of 3,000 clients, told USA Today. “It’s like that old saying, ‘You don’t know what you’ve got ‘til it’s gone’.”

The “sequester” is the bastard child of the debt ceiling negotiations that nearly went so badly between President Barack Obama and Congress in 2011. A deal was finally done (though one credit agency had by then already withdrawn America’s triple-A rating) but only after the White House tabled this sop to Republicans: if we can’t agree a further $1.2trn in spending reductions over 10 years between now and 2013 they will come in automatically. Half will come from the Pentagon and half from elsewhere. That is how the “sequester” was born. A super-committee of members of Congress was convened to agree on an alternative, less arbitrary route to reducing the country’s $16.4trn debt pile, but it failed.

Even until recently the White House was seemingly gambling that the Republicans would still blink and be forced into negotiating an eleventh-hour alternative package of cuts – one of which would include increasing tax revenues for the government as Mr Obama insists should happen – because such deep defence spending cuts would be simply unpalatable to them. The strategy didn’t work – the Republicans haven’t budged.

Last minute manoeuvrings by Senate Republicans to craft an alternative to the sequester appeared to be going nowhere (one envisaged giving the President discretion in deciding where the spending cuts would fall). And this morning, President Obama is due to meet with congressional leaders in the White House, including Republican house speaker John Boehner. No one in Washington thinks they will be doing anything however beyond trying to place the blame for the mess on the other side.

So tomorrow night’s deadline will almost certainly not be met and the axe of the sequester will fall. But politically, this is a disaster that foretells a much bigger calamity. Or two calamities. At the end of March, the arrangements for funding government altogether expire and if they can’t agree on a new law to extend it, a government shutdown could happen. Then in May it will be time to raise the debt ceiling yet again.

The passing of tomorrow night’s deadline might go largely unnoticed by the wider American public, at least for a while. But the political incentive for resolving the differences between the parties before the next two deadlines will be much greater. Nothing scares Washington more deeply than a failure to agree an increase in the debt ceiling and the prospect therefore of American failing to keep up with the payments on its debt. That may be the moment when a grand-bargain on deficit reduction that has eluded Washington for the last several years might finally be mashed together. To assume that will happen may still be rash, however.