Ending long break, White House and Republicans renew budget talks

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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.



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