By Nick Mann | 20 February 2013

US President Barack Obama has warned of the ‘brutal’ consequences for the US economy if Congress fails to agree a deal to avoid the $85bn of automatic spending cuts due to take effect next Friday.

Speaking in the White House yesterday, Obama said that the cuts, known as the sequester, would affect the US’s national defence readiness and ‘eviscerate’ job-creation programmes. The ‘meat-cleaver approach’ would also lead to federal employees losing their jobs, and reduce childcare and healthcare provision, he claimed.

‘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,’ he said.

To avoid the sequester, Obama called for Congress to agree a ‘balanced approach’ to reducing the US deficit. This should involve closing tax loopholes and deductions for the ‘well-off’, while reducing spending ‘we don’t need’ and getting rid of programmes that ‘aren’t working’.

‘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 reiterated his call for Congress to ‘at minimum’ pass a smaller package of spending cuts and tax changes to avoid the ‘harmful’ sequester. This, he said, was ‘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’. 

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?’ 

John Boehner, the leader of the Republicans in the House of Representatives, claimed Obama’s comments endorsed the opposition’s argument that the sequester was the ‘wrong way to cut spending’ but he had offered no ‘credible’ plan as an alternative, just calls for higher taxes.

‘Tax reform is a once-in-a generation opportunity to boost job creation in America. It should not be squandered to enable more Washington spending. Spending is the problem, spending must be the focus,’ he said.