President Obama urged Congress Tuesday to avoid the "meat-cleaver approach" of automatic, across-the-board federal budget cuts set to take effect March 1, as two deficit hawks proposed an alternative plan involving curbs to most tax expenditures that they hope will gain bipartisan support.
Speaking at a White House press conference, Obama said the looming sequester, "will jeopardize our military readiness; it will eviscerate job-creating investments in education and energy and medical research." He added, "These cuts are not smart. They are not fair. They will hurt our economy. They will add hundreds of thousands of Americans to the unemployment rolls. This is not an abstraction - people will lose their jobs."
Obama said he hopes to find hundreds of billions of dollars in savings by enacting comprehensive tax reform that would eliminate tax loopholes and deductions for the wealthy, without raising taxes. He also wants to find savings by reforming the country's entitlement programs.
The president pressed Congress to avoid the $85 billion in cuts set to be enacted next week by coming up with a bipartisan package of spending cuts and tax increases.
He charged that Republicans in Congress are not willing to compromise on a budget deal and instead are focused on protecting "a few special interest tax loopholes that benefit the wealthiest Americans and biggest corporations."
House Speaker John Boehner, R-Ohio., shot back and said that the president's plan to replace the sequester is the wrong path to reducing the federal deficit. Republicans have rejected the president's request to raise more revenue. The "revenue debate is now over" and if policy makers are going to close loopholes and carve-outs in the tax code the revenue generated should be used to lower tax rates, Boehner said in a release.
"Tax reform is a once-in-a-generation opportunity to boost job creation in America," Boehner said. "It should not be squandered to enable more Washington spending."
Obama's remarks come as deficit hawks Alan Simpson and Erskine Bowles released a new $2.4 trillion deficit reduction proposal over 10 years, their latest attempt to help spur congressional leaders to put partisan bickering aside.
Simpson, a former Republican Senator from Wyoming and Bowles, chief of staff for former President Clinton, said in their report titled, "A Bipartisan Path Forward to Deficit Reduction," that "serious fiscal reforms would bolster long-term economic growth while also protecting the economy in the short term by replacing mindless and across-the-board sequestration cuts with targeted reforms and by slowly phasing in savings."
They propose obtaining approximately $600 billion from tax reform that would come from eliminating or scaling back most tax expenditures. A portion of those savings would be dedicated to deficit reduction and the additional savings would be used to reduce tax rates and simplify the tax code, the report said.
"Our current tax code is a mess; we have an opportunity here to unleash tremendous pent up growth," they said.
Another $600 billion in savings would come from health care reforms. The remaining $1.2 trillion in savings would come from a combination of mandatory spending cuts, discretionary caps, lower interest payments and adopting the chained consumer price index for inflation-indexed provisions in the budget.
The total $2.4 trillion package would assume the implementation of policies already in place such as the troop draw down.
The proposal is only a framework aimed at reducing the debt as a percentage of gross domestic product and a more detailed plan is expected in the coming weeks.
Bowles and Simpson also said that their outline is not a revision of their original 2010 fiscal commission plan, but rather builds upon where Congress and the White House were in their negotiations last year. "It is meant to show what is possible in the current political environment that could still put the country on a fiscally sustainable path," they wrote.
That 2010 fiscal commission produced a 65-page report called "The Moment of Truth." It contained an "illustrative individual tax-reform plan" recommending that there be no tax-exemption for new muni bonds.
Meanwhile, Moody's Investors Service issued a detailed analysis of the upcoming fiscal negotiations, saying it will reassess the U.S.' Aaa negative credit rating during the course of the year.
"An agreement that arrests and ultimately reverses the debt trajectory would support a return to a stable outlook," Moody's said.
