Democrats and Republicans in the U.S. Congress are nowhere neara plan to avert $1.2 trillion in spending cuts about two weeksbefore they are set to begin.

It's the latest in a series of fiscal deadlines created byCongress that in the past two years took the U.S. to the brink of adebt default, a government shutdown and middle-class tax increasesthat neither party wanted. Unless lawmakers act, theacross-the-board spending reductions will begin March 1.

Leaving the cuts in place would shave U.S. economic growth thisyear by 0.6 percent and cost 750,000 jobs by the fourth quarter,Congressional Budget Office Director Doug Elmendorf said yesterdayat a hearing.

About half the cuts would affect defense spending, and militaryleaders are pressuring lawmakers to avoid them. Allowing thereductions, known as sequestration, to take effect would mean lesstraining for Army personnel and fewer purchases of Navy vessels andAir Force fighter jets, the leaders said.

“It's pretty clear to me that the sequester's going to go intoeffect,” Senate Minority Leader Mitch McConnell, a KentuckyRepublican, said yesterday.

“It is an eerie similarity here, isn't there, to previousoccurrences,” McConnell said. “Take no action, go right up to thedeadline, and have an 11th-hour negotiation. Read my lips: I'm notinterested in an 11th-hour negotiation.”

President Barack Obama, in his State of the Union address, saidRepublicans, Democrats, business leaders and economists agree thecuts “are a really bad idea.”

“Some in this Congress have proposed preventing only the defensecuts by making even bigger cuts to things like education and jobtraining; Medicare and Social Security benefits,” the presidentsaid. “That idea is even worse.”

Obama repeated his call for a “balanced approach to deficitreduction, with spending cuts and revenue, and with everybody doingtheir fair share.”

In the Republican response to the president's speech, FloridaSenator Marco Rubio said the choice in balancing the budget“doesn't have to be either higher taxes or dramatic benefit cutsfor those in need.” He said economic growth would “create newtaxpayers, not new taxes.”

Lawmakers agreed to the automatic spending cuts, to be spreadover nine years, as part of a 2011 fiscal deal to increase the U.S.debt limit. The spending cuts were supposed to be so onerous thatCongress and the president would never let them occur and wouldcome up with a plan to replace them.

$120 Billion

Senate Democratic leaders plan this week to outline a $120billion proposal, including new tax revenue, to delay the cuts for10 months.

The Democratic proposal would set a minimum 30 percent tax ratefor Americans with the highest incomes, known as the “Buffett rule”after billionaire investor Warren Buffett. It would bar companiesfrom deducting the cost of moving jobs and investments out of theU.S., according to a Senate Democratic aide who asked not to beidentified.

The Senate plan will include revised defense reductions and cutsto agricultural subsidies, the aide said.

Republicans in both chambers say they won't accept any proposalthat includes new revenue, following the Jan. 1 deal that raisedtax rates on top incomes.

Democrats' push for more tax revenue isn't “going to fly” withRepublicans in either chamber, Senator Orrin Hatch, a UtahRepublican, said in an interview.

“It's posturing,” said Hatch, the top Republican on thetax-writing Finance Committee. Senate Democrats are attempting tolook “like they're really trying to do something when, in fact,they know that's dead on arrival,” he said.

House Speaker John Boehner, an Ohio Republican, has said heopposes any delay in the spending reductions unless Congressreplaces them with other “cuts and reforms,” with no newrevenue.

As a precaution, the House isn't passing any revenue bills thatSenate Democrats could use as a vehicle for a plan that wouldinclude higher tax revenue. The Constitution requires tax- writingbills to start in the House.

Another fiscal deadline will arrive on March 27, whenlegislation funding the federal government will expire. Houseleaders plan to take up a six-month funding measure that wouldreduce spending levels to less than $1 trillion, according to twoRepublican aides.

Millionaire Taxes

Senate Majority Leader Harry Reid said Republicans are willingto let the automatic spending cuts go into effect “without closinga single tax loophole or asking millionaires to contribute a singlepenny.”

Republicans “seem content to sit on the sidelines and let thesequester take effect,” said Reid, a Nevada Democrat.

The cuts would be “bad for job growth,” said Chris Van Hollen,the top Democrat on the House Budget Committee.

“There's no disagreement” on the need to reduce the deficit, VanHollen said.

Boehner's spokesman, Brendan Buck, said the speaker agrees thatthe automatic reductions are the wrong way to cut spending. Lastyear, the House voted on its plan to avert the cuts, though itwasn't considered by the Democratic-led Senate. Now, House leaderswon't hold another vote before March 1, said Representative TomCole, an Oklahoma Republican.

“We've done it twice already,” Cole said. “I can understand thefrustration of my leadership here. These cuts are going tohappen.”

Some Senate Republicans questioned whether Obama genuinely wantsa bipartisan deal to avert the cuts.

“Why doesn't the president call us over to the White House, wesit down and come to an agreement to prevent what the secretary ofdefense has said would be a disaster for our national security?”said Senator John McCain, an Arizona Republican who has sought tospare defense from the cuts.

“If you are really interested in a result, you say to the otherside, 'Sit down and let's discuss it,'” said McCain, the 2008Republican presidential nominee who lost to Obama.

Another Republican who has sought to spare defense, NewHampshire Senator Kelly Ayotte, is pushing instead to delay thecuts through Sept. 30. by freezing congressional pay and cutting anumber of federal government jobs by attrition.

“There are other proposals that could be brought forward thatare all spending cuts,” Ayotte said.

Tricare System

The Pentagon's military and civilian leaders appeared before theSenate Armed Services Committee yesterday to outline what theycalled the worst possibilities if the automatic budget cuts takeeffect.

The Defense Department “might not have enough funds” to pay forits health-care system, known as Tricare, according to DeputyDefense Secretary Ashton Carter.

An across-the-board reduction of about $46 billion imposed ondefense programs in the final seven months of the current fiscalyear would threaten “significant and damaging cuts in nearly everybudget category,” Carter said.

“These devastating events are no longer distant problems,”Carter said. “The wolf is at the door.”

Training would have to be reduced for 78 percent of the Army'sunits that aren't in Afghanistan, South Korea or deploying thisyear, said General Ray Odierno, the Army chief of staff.

The cuts may hurt the war-readiness of the 82nd AirborneDivision brigade at Fort Bragg, North Carolina, the Army's premierrapid-deployment force, Odierno said.

Should the cuts last a full decade, the Navy's fleet would bereduced by about 50 vessels to 230 ships, Navy Vice Chief AdmiralMark Ferguson said.

At the start, the service would reduce purchases of Boeing Co.P-8 patrol aircraft, cancel an Arleigh Burke-class destroyer builtby General Dynamics Corp. and delay construction of the aircraftcarrier John F. Kennedy being built by Huntington IngallsIndustries Inc.

The Air Force would have to cut two of its planned 19 F-35 jetsfrom Lockheed Martin Corp. this year, said General Mark Welsh, theservice's chief of staff.

Bloomberg News

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