By Mark Felsenthal
WASHINGTON, Feb 21 (Reuters) - After weeks without talks on
the U.S. budget crisis, President Barack Obama called Republican
leaders on Thursday to discuss the harsh "sequestration" cuts to
government spending due to begin in just over a week.
In what might be just the start of long negotiations to
prevent the $85 billion in cuts, Obama spoke to House of
Representatives Speaker John Boehner and Senate Minority Leader
Mitch McConnell. The conversations were "good," White House
spokesman Jay Carney said, but he declined to provide details.
A McConnell spokesman said it was the first outreach from
Obama since the New Year's Eve "fiscal cliff" deal.
Unlike that impasse, which produced drama in Congress and
stormy meetings at the White House, both sides have so far not
engaged in high-profile negotiations on how to avoid the
government cuts, which few in Washington favor.
The reductions are due to begin on March 1, but their
immediate effects are unlikely to be severe because they will be
phased in gradually over seven months.
That lag could give politicians at least a few weeks to
reach a solution before another budget trigger date - a deadline
for funding the government - comes up at the end of March.
Republicans want to replace the across-the-board sequester
cuts by finding other more-targeted spending reductions.
But congressional Democrats have put forward a $110 billion
plan that includes not only spending cuts but also tax
increases, which are opposed by Republicans.
Obama has expressed doubt a deal can be struck by March 1.
"At this point, we continue to reach out to Republicans and
say this is not going to be good for the economy, it's not going
to be good for ordinary people," the president told radio talk
show host Al Sharpton.
"But I don't know if they're going to move and that's what
we're going to have to keep pushing over the next seven, eight
days," he told Sharpton.
In what looks like a coordinated campaign to win public
support for a broader deficit reduction package that includes
more tax revenue, the White House and government agencies have
warned frequently in recent days of severe damage from the cuts.
They could curb economic growth, lead to some 750,000 lost
jobs and decimate public services like law enforcement and air
traffic control, the administration says.
RHETORIC TONED DOWN
But officials seemed to tone down some of their warnings on
Thursday as Obama made contact with Republicans.
White House spokesman Carney distanced himself from a phrase
used by outgoing Defense Secretary Leon Panetta, whose
department would be hit with the heaviest cuts at $46 billion.
Panetta said this month the United States risked becoming a
"second-rate power" if sequestration went ahead.
"I don't think the issue here is the language you use to
describe it, because every characterization you make of it, if
you're being honest about it, is negative," Carney said when
asked who would be a first-rate power if the United States were
second-rate. "The impact will be negative. It will harm our
national security," Carney said.
It could be months before any meat plants are shut down
because of a furlough of meat inspectors, Agriculture Secretary
Tom Vilsack said, because USDA employees get from 30 to as many
as 120 days notice of impending layoffs, he said.
"I'm not sure what it is in the food safety area," said
Vilsack whose agency has raised the prospect of the furlough
repeatedly in the past two weeks.
An official with the U.S. Department of Health and Human
Services said the White House's Office of Management and Budget
had yet to tell the department how much to cut if there is no
deal in Congress to stop the sequester.
"It's fair to say that nothing really changes on March 1,"
the official said. "We're all going on estimates until OMB
informs us of what the actual percentage cut will be."
The country's top Wall Street regulators are not expecting
layoffs or furloughs. Both the Securities and Exchange
Commission and the Commodity Futures Trading Commission have so
far mostly downplayed the impact of the cuts.
That means traders, financial firms and publicly traded
companies are unlikely to need to prepare, for now, for any
major immediate disruption of financial markets.
In addition, the U.S. public seems only dimly aware of the
sequester, according to a poll released Thursday.
In findings which may help explain the lack of urgency in
Congress so far, about 43 percent of those polled had only heard
a little about the planned cuts.
ONE FISCAL BATTLE AFTER ANOTHER
While the White House and Republican leaders were discussing
sequestration, others in Congress were thinking about the next
big budget fight: the government funding deadline on March 27.
The Republican chairman of the House Appropriations
Committee, Rep. Hal Rogers from Kentucky, is preparing a stopgap
funding bill to avoid a government shutdown at the end of March.
The plan assumes the cuts remain in effect for the rest of
the fiscal year, which ends Sept. 30. That would cut the overall
fiscal 2013 budget for discretionary expenditures, including the
military, to around $974 billion from $1.043 trillion.
Essentially, it is a recognition of the huge gulf between
Democrats and Republicans over how to replace the cuts.
"It's the chairman's intention to keep them separate," a
Rogers aide said. "You don't want to risk a government shutdown
on top of sequestration."
A series of fiscal crises over how to reduce the budget
deficit and $16 trillion national debt have rocked Washington
and eroded business confidence.
James Bullard, president of the Federal Reserve Bank of St.
Louis, said the U.S. economy was ready to take off if only
Washington could sort out the budget.
"If the U.S. could get rid of the cloud of uncertainty
associated with medium- and long-term fiscal uncertainty it
would be a huge positive for the U.S. economy, far surpassing
any temporary negative effects of passing tax increases or
spending cuts," he told reporters in New York.
(Additional reporting By David Lawder, Patrick Rucker, Sarah
Lynch, David Morgan and Charles Abbott in Washington and
Jonathan Spicer in New York; Writing by Alistair Bell; Editing
by Todd Eastham)
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