Obama warns spending cuts could hurt U.S. recovery

WASHINGTON Tue Feb 15, 2011 10:08pm GMT

U.S. President Barack Obama walks to the Oval Office at the White House in Washington, February 14, 2011. GREUTERS/Jim Young

U.S. President Barack Obama walks to the Oval Office at the White House in Washington, February 14, 2011. G

Credit: Reuters/Jim Young

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WASHINGTON (Reuters) - U.S. President Barack Obama warned on Tuesday that immediate, deep budget cuts could hurt the fragile economic recovery, but Republicans pressed to slash spending and brushed off concerns about potential job losses.

Republicans lambasted Obama's budget for 2012 released this week and demanded cuts now in areas such as education and space exploration. Obama -- who promises $1.1 trillion in deficit reduction over 10 years -- still wants to invest in areas such as high speed rail and energy efficiency to boost U.S. competitiveness.

The debate is moving towards a standoff. Republicans aim to pass legislation in the House of Representatives by week's end to cut this year's spending by at least 14 percent, or $61 billion. The White House says Obama would veto such a bill.

"I think it is important to make sure that we don't try to make a series of symbolic cuts this year that could endanger the recovery," he told a news conference.

"We've got to be careful ... Let's use a scalpel; let's not use a machete," he said.

Republicans were eager to wield the heavier instrument. House Speaker John Boehner said if his party's spending cuts led to job losses, that was the price of necessary austerity.

"Over the last two years since President Obama has taken office, the federal government has added 200,000 new federal jobs," Boehner said. "If some of those jobs are lost in this, so be it. We're broke."

Republicans berated Obama in last year's elections for not solving the problem of high unemployment, which remains at nine percent and threatens Obama's chances of re-election in 2012.

Obama called for reforming the expensive government pension and healthcare programs and repeated a pledge to simplify U.S. tax laws. But his main message focussed on the economy, which has been slow to recover from the recession that ended in 2009.

Data on Tuesday showed growth in sales at U.S. retailers slowed in January, partly due to harsh winter weather across much of the country, but the trend remained supportive of an acceleration in economic growth.

GOING FURTHER

Obama signalled a willingness to go further on spending cuts -- just not in the short term. Financial markets, he said, would be satisfied if both parties worked together on cutting the deficit over the long-term.

"I think what the markets want to see is progress," he said. "If they see us chipping away at this problem in a serious way, even if we haven't solved 100 percent of it all in one fell swoop, then that will provide more confidence that -- that Washington can work."

How well Washington works will be put on display in the coming weeks.

Conservatives -- with Tea Party backing -- are pushing to make huge cuts this year with hundreds of amendments to the House bill. But the Senate, controlled by Obama's Democrats, is unlikely to back deep cuts approved by the House.

Obama's budget for 2012 did not touch the biggest drivers of the deficit, mandatory spending for Social Security pensions, Medicare and Medicaid healthcare programs for the poor and elderly, which make up about two-thirds of the budget.

Obama showed interest in tackling those expensive entitlement programs and urged the opposition party to work with him to do so.

He said he wanted to simplify the unwieldy tax code, which could help reduce a U.S. budget deficit that the White House estimates will hit $1.65 trillion this year.

White House Budget Director Jack Lew travelled to Capitol Hill to defend Obama's budget blueprint for next year, only to hear Republicans accuse the president of failing to tackle the nation's deep fiscal problems.

"The president's budget disregards the drivers of our debt crisis and the insolvency of our entitlement programs, House Budget Committee Chairman Paul Ryan told Lew.

"We cannot let the United States become another Greece or another Ireland or another Portugal," said Republican Representative Jerry Lewis.

(Additional reporting by David Lawder and Rachelle Younglai, Editing by Jackie Frank)

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