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Sequester Disagreements Could Further Complicate Fiscal Cliff Negotiations

The question of how to replace the sequester — the $109 billion in automatic, across-the-board spending reductions set to start cutting into the budget at the start of the year — is emerging as a sharp point of conflict standing in the way of a fiscal cliff deal.

Conservative Republicans in both chambers are intent on replacing the cuts with alternative spending reductions, not tax increases. But many Democrats view revenue as a better replacement. Senate Republicans charge the proposal advanced by President Barack Obama last week would shut off the sequester without finding alternative cuts, which they say they will not accept.

“The $1.2 trillion in sequester cuts would be eliminated,” Sen. Jeff Sessions, R-Ala., said on the Senate floor Dec. 6, “That is more than half the cuts we agreed to last year. They would be eliminated.”

The ongoing standoff comes as the spotlight in negotiations on the fiscal cliff issues has focused almost entirely on the gap between the White House and Republicans on taxes. In the meantime, however, the Obama administration is accelerating its efforts to prepare for the spending cuts if no agreement is reached. The White House Office of Management and Budget in early December asked agencies to provide greater detail on how they would cut spending if the sequester is triggered as scheduled Jan. 2.

The sequester would cut $109 billion in spending next year and $1.2 trillion over 10 years.

The Congressional Budget Office has estimated the sequester would reduce discretionary spending by about $98 billion next year, including $55 billion from defense and $43 billion from domestic programs. Across-the-board cuts also would trim about $11 billion from Medicare and other mandatory spending programs. Social Security, Medicaid, veterans benefits and other programs that serve the poor are exempt from the cuts.

The White House has consistently avoided specifics on how the sequester would affect agencies, and even now agencies are not saying how the cuts would be implemented, leaving massive uncertainty for both federal workers and contractors. Agencies will have some flexibility on when to make the cuts, so the effect wouldn’t necessarily be obvious on Jan. 2, unlike during a full-fledged government shutdown.

“This action should not be read … as a change in the administration’s commitment to reach an agreement and avoid sequestration,” Obama spokesman Jay Carney said. “OMB is simply ensuring that the administration is prepared, should it become necessary, to issue such an order.”

The administration has not made public the request, described as an internal technical communication between the budget office and agencies.

Given that there is a strong likelihood of a two-step process in any final agreement on the fiscal cliff provisions, there remains a strong chance the sequester will stay in place for future years as an enforcement mechanism for delivering spending and tax packages next year.

In a plan Treasury Secretary Timothy F. Geithner gave to Congress week, the administration proposed a $4-trillion deficit reduction framework that would replace the $1.2 trillion sequester. Democrats said the plan would raise $1.6 trillion in new taxes. Republicans called it a phony proposal because, they say, it counts some $800 billion in war savings and includes about $1 trillion in spending cuts already were enacted in the 2011 debt limit increase.

It’s unclear to what extent a counteroffer proposed by Speaker John A. Boehner, R-Ohio, would replace the sequester.

“It could be structured in a number of ways,” Boehner spokesman Michael Steel said Dec. 7 of the $2.2 trillion deficit reduction plan.

The Boehner framework would raise $800 billion in revenue, and spending would be cut by $1.4 trillion over a decade.

Although both parties object to the arbitrary nature of the sequester, they are on different pages on how it should be replaced.

The sequester resulted from the inability of a special deficit reduction committee to reach agreement last fall on a plan to reduce the deficit by $1.2 trillion over 10 years. Republicans contend that all the deficit reduction should be in the form of spending cuts. The debt limit law, however, gave the committee flexibility to use spending cuts, revenue increases or a combination of both.

Steven T. Dennis contributed to this report.

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