New crisis looms as cuts hit US

New crisis looms as cuts hit US

Sweeping US government spending cuts totalling $85bn will begin today, in an unwanted move towards austerity that lays bare Washington’s paralysing partisan divisions.

The cuts are kicking in after the White House and congressional Republicans failed to overcome bitter disagreements and come up with a better plan to tackle the country’s $11.7 trillion debt.

The warring sides spent this week assigning blame rather than seeking a way out and rival Democratic and Republican measures to modify the cuts failed in the senate yesterday.

The automatic spending reductions are part of a law passed two years ago and designed to be so off-putting to both Democrats and Republicans as to force a compromise.

It did not work, although White House press secretary Jay Carney said the cuts would be put into force as close to midnight as possible because President Barack Obama was “ever hopeful”.

The immediate impact of the cuts on the public was uncertain and the administration pulled back on its earlier warnings of long lines developing quickly at airports and teacher job losses. It is expected to be a fiscal speed-bump on the road to economic recovery that is otherwise looking good.

The cuts would carve 5% from domestic agencies and 8% from the Pentagon between now and October 1 but would leave several major programmes alone, including the Social Security pension scheme, the Medicaid health care programme for the poor and food stamps.

Government agencies must give workers a month’s notice before laying people off, which will probably force many to take one day a week of unpaid leave indefinitely.

The delay gives politicians time to seek a deal that might retroactively reverse the spending cuts before they could do much damage to the economy.

But the painful cuts are just the first of a series of budget crises that will confront Congress and the White House before summer.

Mr Obama is meeting congressional leaders of both parties today but the talks will look past the automatic spending cuts to the next looming fiscal fight: a possible government shutdown.

The annual ritual of passing agency spending bills collapsed entirely last year and Congress must act by March 27 to prevent the partial shutdown.

Then, in April, Congress will confront a renewed stand-off on increasing the government’s borrowing limit – the same issue that two years ago spawned the law forcing the current spending cuts in the first place. Failure to raise the borrowing limit could force the US to default on debt for the first time in history.

So entrenched are the two parties that chaplain Barry Black opened the senate session yesterday with a prayer that beseeched a higher power to intervene.

“Rise up, O God, and save us from ourselves,” he said.

But the rival plans for averting the automatic spending cuts were doomed even before the senate vote. The proposals were introduced more as a tactic to allow senators to underline their partisan loyalty and save their parties from public blame for any resulting fallout.

Democrats thwarted a Republican proposal that would have required Mr Obama to propose alternative cuts that would cause less disruption in essential government services. Moments later, a Democratic alternative to spread the cuts over a decade and replace half with higher taxes on millionaires and corporations met the same fate.

In a written statement after the votes, Mr Obama lambasted Republicans, saying: “They voted to let the entire burden of deficit reduction fall squarely on the middle class.”

House of Representatives speaker John Boehner, the top Congress Republican, said: “Obama and senate Democrats are demanding more tax hikes to fuel more ’stimulus’ spending.”

With negotiations set to begin at the White House today, some Republicans held out hope the current struggle might lead to talks on completing work on the final piece of a deficit reduction package that has been more than two agonising years in the making.

The opposition party wants to overhaul the US tax law and win reductions in social safety net programmes, the government pension system, medical insurance for Americans of retirement age and health care for the poor.

Mr Obama and some Democrats are willing to see some small alterations to those programmes but nothing on the scale sought by Republicans. And the Democrats want to raise taxes on the wealthy to, in part, fund new or expanded government programmes. Republicans want any increase in tax revenue to go straight towards reducing the debt.

In a cycle of crisis followed by compromise over the past two years, Mr Obama and congressional Republicans have agreed to more than $3.6 trillion in long-term deficit savings over a decade. While much of that has come from spending restraint, Republicans allowed legislation to pass late last year that raised taxes on upper-income Americans by $600m.

None of the savings to date has come from the big benefit programmes that both parties say must be tackled if the country is to gain control over its finances. Each party fears the political fallout of confronting them on their own, but Democrats in particular are reluctant to scale back schemes that they count as their political birthright.

Still, many will be affected by the cuts. Navy officials have plans to force mandatory lay-offs on about 186,000 civilian employees across the country a shipyards have outlined cost-cutting plans to delay huge maintenance contracts on nuclear submarines and aircraft carriers.

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