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White House warns of damaging "sequestration" spending cuts

The White House is seen with the Washington Monument (L) behind it and the Jefferson Memorial (R) in Washington, May 1, 2011. REUTERS/Gary H
The White House is seen with the Washington Monument (L) behind it and the Jefferson Memorial (R) in Washington, May 1, 2011. REUTERS/Gary H

By Mark Felsenthal and Roberta Rampton

WASHINGTON (Reuters) - The White House said on Friday that government spending cuts due to take effect March 1 would have harsh consequences for ordinary Americans and the U.S. economy, seeking to turn up pressure on Congress to come up with a plan to avoid what Washington calls "sequestration."

President Barack Obama said the spending cuts could weaken U.S. military preparedness.

"There is no reason, no reason for that to happen," Obama said at a farewell ceremony for Defense Secretary Leon Panetta.

"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.

In its strongest warnings yet, the White House separately gave examples of what it said program cuts would mean: 1,000 fewer FBI officers, mass layoffs of government meat and food inspectors, and aid benefits slashed for hundreds of thousands of low-income women and children.

"Sequester is a blunt and indiscriminate instrument that poses a serious threat to our national security, domestic priorities and the economy," Danny Werfel, a senior official at the White House budget office, told reporters at a briefing.

"It does not represent a responsible way to achieve deficit reduction," he said.

The administration repeated its plea to Congress to put off the planned reductions, which the White House said would slash non-defense programs by 9 percent across the board and defense programs by 13 percent in the current fiscal year, resulting in "furloughs," or temporary layoffs, for hundreds of thousands of government workers.

White House economic aide Jason Furman said it was up to Congress to work out the details of how to raise revenues and cut spending so both sides have time to agree on how replace the sequester with a more acceptable fiscal belt-tightening program.

"What we're trying to do now is make sure Congress can buy the time it needs in order to do this entitlement reform, tax reform, that's a much better solution to our problems than letting the sequester hit," Furman said.

Republicans said that while they agree sequestration could be devastating, the president must propose spending cuts if he wants to see the deep automatic cuts replaced with something more palatable.

"Spending is still the problem," said Brendan Buck, a spokesman for House of Representatives Speaker John Boehner. "It's time to finally make the cuts and reforms we all know are needed to save and strengthen our safety net programs."

Republican aides said there had been no outreach from the White House to senior members of their party on the sequester.

"Not a peep," a Senate Republican leadership aide said.

LEGACY OF 2011 BUDGET BATTLES

Sequestration is a legacy of the 2011 impasse between Obama and congressional Republicans over raising the nation's debt limit. Republicans, unhappy about the nation's deficit, wanted to match any increases in the borrowing cap with cuts to government spending.

The president balked at cutting social safety net programs, and the nation came close to defaulting on its debt as a deal eluded negotiators. The two sides finally agreed to raise the debt ceiling but vowed to continue negotiating to cut the deficit, setting up a deadline for the painful automatic sequestration cuts as an incentive to come to terms.

The automatic cuts were reportedly suggested by the White House but were agreed to by both sides. The spending reductions are divided equally among nondefense and defense programs in an effort to make politicians at both ends of the political spectrum feel the pressure to compromise.

The long period of fiscal skirmishing between Obama and congressional Republicans has been blamed by economists for creating a drag on the sluggish U.S. economic recovery because it leaves businesses and consumers uncertain about tax rates and government spending plans.

Defense spending fell sharply at the end of last year, in part because of fiscal uncertainty, contributing to a contraction of the overall economy in the quarter.

Obama's November re-election and gains by Democrats in both houses of Congress have strengthened the president's hand in fiscal negotiations.

The two sides were able to avoid an initial year-end deadline for spending cuts with a deal that raised taxes on the wealthiest while leaving lower rates in place for most Americans. The deal to avoid the so-called "fiscal cliff" postponed automatic cuts for two months.

NEW REVENUE, TARGETED CUTS

Cutting government spending remains a high priority for Republicans, who still control the House of Representatives. However, the White House pushed back on Friday by painting a dire picture of what would happen if the automatic cuts were allowed to go into effect.

Obama wants Republicans to agree to a short-term budget package to avoid the deepest of the automatic spending cuts but has said it needs to be "balanced" - that is, include some increases in revenue from closing tax loopholes. Boehner has said he would block any delay in those cuts unless other spending cuts and reforms are agreed to.

Key Democratic U.S. senators are discussing a plan that could be introduced next week to turn off the sequester for 10 months, through December 31, and pay for it half with new revenues and half with spending cuts, a Democratic Senate aide said.

While no elements have been decided upon yet, provisions under discussion include ideas Democrats have raised before, such as raising taxes on carried interest, a provision aimed at wealthy investors who profit from hedge funds and private equity partnerships.

Tax breaks for corporate jets and large oil companies could also be targeted, along with higher payroll taxes on smaller private firms organized as S-corporations. The senators are also considering reductions in farm subsidies, which they consider a spending cut.

Senate Majority Leader Harry Reid discussed the plan on Thursday with Senate Budget Committee Chairman Patty Murray, Finance Committee Chairman Max Baucus and Appropriations Committee Chairman Barbara Mikulski.

(Reporting By Roberta Rampton, Matt Spetalnick, Mark Felsenthal and David Lawder; Editing by Alistair Bell, Todd Eastham and Jim Loney)

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