President Obama appealed to Congress to balance tax reforms with spending cuts to avoid the painful automatic cuts imposed by the budget sequester deal.

In a speech Tuesday at the White House accompanied by a group of emergency responders whose jobs could be eliminated if the automatic spending cuts went through, Obama urged Congress to reach an agreement to prevent the arbitrary cuts from occurring in 10 days’ time.

“Over the last few years, both parties have worked together to reduce our deficits by more than $2.5 trillion,” he said. “More than two-thirds of that was through some pretty tough spending cuts. The rest of it was through raising tax rates on the wealthiest 1 percent of Americans. And together, when you take the spending cuts and the increased tax rates on the top 1 percent, it puts us more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.”

He noted that in 2011, Congress passed a law saying that if both parties couldn’t agree on a plan to reach that $4 trillion goal, about a trillion dollars of additional, arbitrary budget cuts would start to take effect this year. “The whole design of these arbitrary cuts was to make them so unattractive and unappealing that Democrats and Republicans would actually get together and find a good compromise of sensible cuts as well as closing tax loopholes and so forth,” Obama pointed out. “And so this was all designed to say we can't do these bad cuts; let’s do something smarter. That was the whole point of this so-called sequestration. Unfortunately, Congress didn’t compromise. They haven't come together and done their jobs, and so as a consequence, we've got these automatic, brutal spending cuts that are poised to happen next Friday.”

Obama warned about the consequences if the spending cuts go through in the arbitrary manner prescribed under the original deal.

“If Congress allows this meat-cleaver approach to take place, it will jeopardize our military readiness; it will eviscerate job-creating investments in education and energy and medical research,” he said. “It won’t consider whether we’re cutting some bloated program that has outlived its usefulness, or a vital service that Americans depend on every single day.  It doesn’t make those distinctions.”

Obama cautioned that unless an agreement was reached, the ability of emergency responders to help communities respond to and recover from disasters would be degraded. Border Patrol agents would see their hours reduced, and FBI agents would be furloughed. 

“Federal prosecutors will have to close cases and let criminals go,” he added. “Air traffic controllers and airport security would see cutbacks, which means more delays at airports across the country. Thousands of teachers and educators will be laid off. Tens of thousands of parents will have to scramble to find childcare for their kids. Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings.”

He noted that the threat of the budget cuts has already forced the Navy to delay an aircraft carrier that was supposed to deploy to the Persian Gulf. “As our military leaders have made clear, changes like this—not well thought through, not phased in properly—changes like this affect our ability to respond to threats in unstable parts of the world,” Obama added. “So 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. The unemployment rate might tick up again.”

Obama instead urged Congress to come up with smarter ways to do the budget cuts and to temper them by ending some tax breaks. “There is a smarter way to do this—to reduce our deficits without harming our economy,” he said. “But Congress has to act in order for that to happen.”

He said he was willing to cut more spending that isn’t needed and get rid of programs that aren’t working. “I’ve laid out specific reforms to our entitlement programs that can achieve the same amount of health care savings by the beginning of the next decade as the reforms that were proposed by the bipartisan Simpson-Bowles commission,” he said. “I’m willing to save hundreds of billions of dollars by enacting comprehensive tax reform that gets rid of tax loopholes and deductions for the well off and well connected, without raising tax rates. I believe such a balanced approach that combines tax reform with some additional spending reforms, done in a smart, thoughtful way is the best way to finish the job of deficit reduction and avoid these cuts once and for all that could hurt our economy, slow our recovery, put people out of work. And most Americans agree with me.”

Obama acknowledged that both the House and the Senate are working on budgets that he hopes will reflect this approach, but he said that if they cannot reach an agreement by next Friday, they should pass a smaller set of deficit reduction measures.

“If they can’t get such a budget agreement done by next Friday—the day these harmful cuts begin to take effect—then at minimum, Congress should pass a smaller package of spending cuts and tax reforms that would prevent these harmful cuts—not to kick the can down the road, but to give them time to work together on a plan that finishes the job of deficit reduction in a sensible way,” he said. “I know Democrats in the House and in the Senate have proposed such a plan—a balanced plan, one that pairs more spending cuts with tax reform that closes special interest loopholes and makes sure that billionaires can’t pay a lower tax rate than their secretaries.”

“And I know that Republicans have proposed some ideas, too,” he added. “I have to say, though, that so far at least the ideas that the Republicans have proposed ask nothing of the wealthiest Americans or biggest corporations, so the burden is all on first responders or seniors or middle-class families. They double down, in fact, on the harsh, harmful cuts that I’ve outlined. They slash Medicare and investments that create good, middle-class jobs. And so far at least what they’ve expressed is a preference where they’d rather have these cuts go into effect than close a single tax loophole for the wealthiest Americans. Not one.”

Obama insisted the Republican plan was not balanced. “That would be like Democrats saying we have to close our deficits without any spending cuts whatsoever. It’s all taxes. That's not the position Democrats have taken. That's certainly not the position I’ve taken,” he said. “It’s wrong to ask the middle class to bear the full burden of deficit reduction.  And that’s why I will not sign a plan that harms the middle class.”

Obama urged Republicans to agree to a compromise. “Now Republicans in Congress face a simple choice,” he said. “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 that benefit only the wealthiest Americans and biggest corporations? That's the choice. Are you willing to see a bunch of first responders lose their job because you want to protect some special interest tax loophole? Are you willing to have teachers laid off, or kids not have access to Head Start, or deeper cuts in student loan programs just because you want to protect a special tax interest loophole that the vast majority of Americans don't benefit from? That's the choice. That's the question.”

Reactions from Congress
House Ways and Means Committee chairman Dave Camp, R-Mich., rejected Obama’s approach of exchanging tax increases for spending cuts. “There is a spending problem in Washington,” he said. “That is why nearly two years ago, in a rare showing of bipartisanship, Congress agreed to the President's sequester plan to take a small step toward reducing overspending. I'm disappointed the President is now backing away from that deal – a deal that he first suggested. Walking away from spending cuts and replacing them with tax increases will do nothing to solve our spending problem, but it will hurt job creation. If the President wants different spending cuts, we can work to find better, smarter cuts. In fact, the House passed two bills to cut spending in a more responsible way, but the Democrat-controlled Senate has failed to act.”

Camp insisted that the goal needed to be to cut spending. “It makes no sense to raise taxes on hardworking Americans, as the President calls for, while Washington continues to spend taxpayer dollars,” he said. “By the government’s own estimates, it wasted $115 billion in 2011 alone on improper payments across numerous government programs and agencies. Targeting wasteful spending, rather than targeting taxpayers, is where Republicans are focusing their energies—and 73 percent of Americans agree that reducing spending is better for our economy than simply spending more.”

Camp said he welcomed the President’s willingness to close loopholes in the tax code. “However, real tax reform should benefit hardworking taxpayers by giving them a simpler, fairer tax code that leads to a stronger economy and more jobs,” he added. “Under the President’s plan, closing loopholes would just fund more Washington spending.  That’s not tax reform, that’s just the tired, old and failed tax and spend policies of the past.”

Senate Finance Committee Chairman Max Baucus, D-Mont., said Congress needed to work together to prevent the across-the-board cuts and lasting economic damage.

“The sequester is not the right way to take on the economic challenges facing our nation,” he said in a statement.  “We absolutely need to cut federal spending, but we should do so with a scalpel, not an ax.  The sequester’s indiscriminate cuts pose a serious threat to our nation’s economic recovery, and every American will feel the effects.  In the short term, we need a balanced approach that focuses on job creation.  In the long term, we need a comprehensive bipartisan plan to bring down the deficit.

“This cycle of going from one fiscal crisis to the next is undermining our economy, and it needs to end,” Baucus added.  “We need to put politics aside and work together to craft policies that provide some economic certainty to America’s families and businesses.  That is the only way we can restore confidence in the economy and spark the economic growth our nation so desperately needs.”

Senator Chuck Grassley, R-Iowa, a former chairman of the Senate Finance Committee, criticized the President’s speech. “It’s discouraging to see the President complain about fiscal responsibility after the record of the last four years, including having done nothing to avert the approaching sequester which the White House proposed and worked to enact in August 2011,” he said in a statement. “The House of Representatives passed alternatives twice last year while the White House and Senate leadership did nothing. Regular order has been almost totally lacking under Democratic leadership of the Senate, especially on budgetary issues. What’s more, the sequester pales in comparison to the fiscal impact that looms from spending commitments to entitlement programs, including the new entitlement program created by the President’s 2010 health care law. There has been no leadership from the White House and Senate majority to pursue structural reforms to those programs, either, despite the importance of saving Medicare and Medicaid for future generations. The sooner Washington takes action, the less dramatic the changes need to be. It’s up to the President and the Senate to join in this debate and the development of proposals.”