Financial Planning > Tax Planning > Tax Reform

Obama Blasts ‘Meat Cleaver’ Cuts as Simpson, Bowles Release New Plan

Your article was successfully shared with the contacts you provided.

With little time left until the $85 billion in sequestration cuts take effect on March 1, President Barack Obama urged lawmakers Tuesday to prevent what he called the “brutal” cuts from taking place.

Despite the fact that Congress is in recess this week, Alan Simpson and Erskine Bowles—co-chairmen of Obama’s 2010 debt commission—descended on Capitol Hill the same day to push a new plan that would cut the projected deficit by a further $2.4 trillion over the next 10 years, over and above the $2.5 trillion in deficit reduction that has already taken place.

In comments from the White House, Obama detailed who would be affected by what he called the “meat-cleaver approach.” The sequestration, he said, “will jeopardize our military readiness; it will eviscerate job-creating investments in education and energy and medical research.”

Emergency responders, Obama said, and their ability to help communities respond to and recover from disasters will be degraded; Border Patrol agents will see their hours reduced; FBI agents will be furloughed; federal prosecutors will have to close cases and let criminals go; air traffic controllers and airport security will see cutbacks; thousands of teachers will be laid off; tens of thousands of parents will have to scramble to find childcare; Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings.

The Wall Street Journal reported that the new Simpson-Bowles proposal would identify $600 billion in spending reductions—roughly $200 billion more than the White House has said it is willing to accept—through changes to health care programs such as Medicare and Medicaid.

Another $600 billion in deficit reduction would come from curbing or ending a number of tax breaks, the Journal reported, roughly in line with the level of increased revenue that White House officials have said they are seeking. Most Republicans, however, have said they won’t accept any tax increases as part of a deficit reduction package.

The final $1.2 trillion in the proposal would come from lower caps on discretionary spending—the type Congress approves annually—changing the way cost-of-living increases are calculated for Social Security checks and other government benefits, cutting farm subsidies, and changing military and civilian retirement programs, among other things, the Journal reported.

David Kelly, chief global strategist for J.P. Morgan Funds, noted in his weekly commentary on Tuesday that “neither Republicans nor Democrats seem serious in trying to avoid” the sequester.

The most likely scenario, he said, “is that the sequester does take effect but that, in the months to come, both sides find some ways to replace the most egregious cuts.” Nevertheless, “both the reductions in government discretionary spending in the short run and the lack of clarity on long-term fiscal adjustments will act as an unnecessary drag on economic progress.”

Indeed, Obama went on to say that the sequestration cuts would do the opposite of growing the economy and creating a strong middle class, his top priorities. Over the last few years, Obama said, “both parties have worked together to reduce our deficits by more than $2.5 trillion. More than two-thirds of that was through some pretty tough spending cuts. The rest of it was through raising taxes—tax rates on the wealthiest 1% of Americans. And together, when you take the spending cuts and the increased tax rates on the top 1%, it puts us more than halfway toward the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.”

The sequestration cuts are “not smart. They are not fair. They will hurt our economy,” Obama continued. As he laid out in his State of the Union address, Obama said the “smarter” way to reduce the deficit was through a balanced approach that combines tax reform with additional spending reforms.

The House and the Senate, he said, “are working on budgets that I hope reflect this approach. But 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.”