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Spending cuts will hurt economy, says Obama

The $1.2tn cuts are effective 1 March 2013.

The US President Barack Obama has warned that the automatic spending cuts at the Pentagon and other federal agencies will reduce employment creating investments and jeopardise the country’s military readiness.

Citing cuts as a “meat cleaver” approach to deficit reduction, Obama said: “These cuts are not smart. They are not fair. They will hurt our economy.”

The president’s warning message came as Alan Simpson and Erskine Bowles presented a revised plan to prevent the automatic cuts with $2.4tn in additional deficit reduction over 10 years.

Simpson and Bowles, who served as co-chairmen of the White House's 2010 deficit-reduction panel, have urged Republicans, who are opposing any new tax rises, to accept an additional $600bn in new revenues over 10 years, while challenging Obama and Democrats to cut government healthcare and pension programmes more deeply than they are interested.

In the absence of a bargain between Democrats and Republicans, the White House will ask Congress to cut the budget by $110bn to avoid the sequestration cuts due to hit in 2013.

Obama said: “Republicans in Congress face a simple choice. Are they willing to compromise to protect vital investments in education and healthcare and national security and all the jobs that depend on them, or would they rather put . . . our entire economy at risk to protect a few special interest loopholes?”

John Boehner, Republican speaker of the House of Representatives, criticised the president for not offering a “credible plan that can pass Congress – only more calls for higher taxes ”.

The automatic spending cuts were agreed in August 2011.