U.S. President Barack Obama delivers remarks next to Vice President Joe Biden (L) after the House of Representatives acted on legislation intended to avoid the ''fiscal cliff,'' at the White House in Washington January 1, 2013.

WASHINGTON | Thu Jan 31, 2013 3:08am EST

WASHINGTON (Reuters) - Big automatic cuts in federal spending are fast approaching again, alarming the defense sector but generating little activity in Congress to avoid them.

The cuts, known as a "sequestration," were postponed for two months as part of the legislation that ended the standoff over the "fiscal cliff" on January 1.

But the sense of crisis that accompanied the thought of across-the-board reductions then has all but vanished, replaced by a widespread sense of inevitability.

"I think we're going to have" the cuts "for some period of time, and I think the squeals from constituents will compel some compromise that will emerge in the second half of March," said Steve Bell, economic policy director at the Bipartisan Policy Center and a former Republican House Budget Committee staff director.

The defense industry's concern stems from the fact that half of the $85 billion in spending reductions will come from the budget of the Department of Defense, with the other half hitting a wide array of other government programs.

Outgoing Defense Secretary Leon Panetta as well as his designated successor, Chuck Hagel, have warned that the cuts will impair military readiness.

Congress' lack of urgency as it hurtles toward the launch of spending reductions on March 1 may be affected by Wednesday's news that the U.S. economy contracted in the fourth quarter.

The GDP report showed government spending tumbled at a 6.6 percent rate, with defense outlays plunging at a 22.2 percent pace, the largest drop since the third quarter of 1972.

But failure to find replacement savings by the March 1 deadline is not expected to spark a financial crisis because the cuts, split evenly between military and domestic programs, would start to bite gradually.

Unlike the "fiscal cliff" cuts, these are not accompanied by the threat of massive tax hikes, ultimately imposed only on the wealthiest taxpayers as a result of the legislation that ended the fiscal cliff standoff.

'DEVASTATING'

Worry runs deep through the defense sector, from weapons maker Northrop Grumman Corp to President Barack Obama's nominee for defense secretary, Hagel. They are calling on lawmakers to find a solution.

Hagel said the cuts would be "devastating" to the Pentagon.

"It would harm military readiness and disrupt each and every investment program," he said in written answers to senators' questions before a confirmation hearing on Thursday. "I urge Congress to eliminate the sequester threat permanently and pass a balanced deficit reduction plan."

While there are no public signs of negotiations between Republicans and Democrats to avert the cuts, the blame game is well under way.

Republican House of Representatives Budget Committee Chairman Paul Ryan said earlier this week he believed the automatic cuts "will probably happen" because Democrats were not willing to accept further cuts to domestic programs to shield military spending.

Top Senate Democrats have put the onus on House Republicans, saying they are unwilling to accept higher tax revenues as part of a balanced approach to replacing the cuts.

Another factor is at work in the House - the increasing influence of deficit hawks who believe the military should shoulder more of the deficit reduction burden. Traditionally, Republicans, including Ryan, last year's Republican vice presidential nominee, have tried to protect military programs.

"The momentum has shifted to those in the caucus who believe that the only savings we're ever going to get are going to be the sequester savings," said Bell.

Those fiscal conservatives believe Obama will not negotiate with them or agree to any significant cuts in social programs.

He added that it was possible that in the absence of a deal, Congress could provide some legislative language that gives domestic agencies and others some flexibility in making their cuts, rather than accept them in their current, across-the-board form.

Some Democrats are voicing concern the cuts could do serious economic damage.

"I think there should be a sense of urgency, because ... we're looking at an economy struggling to recover and the number of people who we want to have jobs who are still unemployed," said Democratic Senator Jean Shaheen of New Hampshire.

"A failure to take action on what we know is going to have a significant impact on that is simply unacceptable," said Shaheen, a member of the Senate Armed Services and Appropriations committees.

Northrop Grumman, which builds electronics and unmanned surveillance planes, warned that profits this year would fall sharply due to the increasing pressure on the defense budget.

"Our nation needs a balanced, strategic approach to our fiscal challenges ... not blind, indiscriminate budget cutting" Northrop Grumman Chief Executive Wes Bush told an earnings conference call.

LAYOFFS DETAILED

The Pentagon has begun to detail its cost-cutting plans in workforce and regional terms. It has enacted a freeze in civilian hiring, a move that hits employment for veterans since 44 percent of civilian defense employees are vets.

The military services also are planning to lay off temporary or contract employees, which could affect up to 46,000 workers. They will also delay routine maintenance of ships and aircraft that had been planned for the third and fourth quarters, officials said.

The Navy estimates its planned cuts will reduce spending by $1.4 billion along the East Coast, including canceling $271 million in maintenance at shipyards in the Norfolk, Virginia, area and $81 million in aircraft maintenance at Cherry Point, North Carolina.

The Navy also is planning to cancel $681 million in spending in California, $339 million in the Pacific Northwest, $299 million in Florida, $197 million in the U.S. Northeast and $110 million in Hawaii, officials said.

If automatic spending cuts under sequestration go into effect on March 1, the Navy would have to cut a further $4.08 billion in spending through the end of the current fiscal year, over and above the $6.3 billion it is trying to reduce now.

Those cuts would require further delays in repairs and a reduction in the number of steaming and flying days, the Navy said. The Navy might also have to reduce the number of carrier strike groups in the Middle East, it said.

The Army and Air Force also are expected to implement spending reductions before March 1 and are due to submit their plans to Deputy Secretary of Defense Ashton Carter later this week.

(Additional reporting by David Alexander, Patricia Zengerle, Phil Stewart and Andrea Shalal-Esa; Editing by Fred Barbash, Mary Milliken and Peter Cooney)

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U.S. President Barack Obama delivers remarks next to Vice President Joe Biden (L) after the House of Representatives acted on legislation intended to avoid the ''fiscal cliff,'' at the White House in Washington January 1, 2013.

WASHINGTON | Thu Jan 31, 2013 3:08am EST

WASHINGTON (Reuters) - Big automatic cuts in federal spending are fast approaching again, alarming the defense sector but generating little activity in Congress to avoid them.

The cuts, known as a "sequestration," were postponed for two months as part of the legislation that ended the standoff over the "fiscal cliff" on January 1.

But the sense of crisis that accompanied the thought of across-the-board reductions then has all but vanished, replaced by a widespread sense of inevitability.

"I think we're going to have" the cuts "for some period of time, and I think the squeals from constituents will compel some compromise that will emerge in the second half of March," said Steve Bell, economic policy director at the Bipartisan Policy Center and a former Republican House Budget Committee staff director.

The defense industry's concern stems from the fact that half of the $85 billion in spending reductions will come from the budget of the Department of Defense, with the other half hitting a wide array of other government programs.

Outgoing Defense Secretary Leon Panetta as well as his designated successor, Chuck Hagel, have warned that the cuts will impair military readiness.

Congress' lack of urgency as it hurtles toward the launch of spending reductions on March 1 may be affected by Wednesday's news that the U.S. economy contracted in the fourth quarter.

The GDP report showed government spending tumbled at a 6.6 percent rate, with defense outlays plunging at a 22.2 percent pace, the largest drop since the third quarter of 1972.

But failure to find replacement savings by the March 1 deadline is not expected to spark a financial crisis because the cuts, split evenly between military and domestic programs, would start to bite gradually.

Unlike the "fiscal cliff" cuts, these are not accompanied by the threat of massive tax hikes, ultimately imposed only on the wealthiest taxpayers as a result of the legislation that ended the fiscal cliff standoff.

'DEVASTATING'

Worry runs deep through the defense sector, from weapons maker Northrop Grumman Corp to President Barack Obama's nominee for defense secretary, Hagel. They are calling on lawmakers to find a solution.

Hagel said the cuts would be "devastating" to the Pentagon.

"It would harm military readiness and disrupt each and every investment program," he said in written answers to senators' questions before a confirmation hearing on Thursday. "I urge Congress to eliminate the sequester threat permanently and pass a balanced deficit reduction plan."

While there are no public signs of negotiations between Republicans and Democrats to avert the cuts, the blame game is well under way.

Republican House of Representatives Budget Committee Chairman Paul Ryan said earlier this week he believed the automatic cuts "will probably happen" because Democrats were not willing to accept further cuts to domestic programs to shield military spending.

Top Senate Democrats have put the onus on House Republicans, saying they are unwilling to accept higher tax revenues as part of a balanced approach to replacing the cuts.

Another factor is at work in the House - the increasing influence of deficit hawks who believe the military should shoulder more of the deficit reduction burden. Traditionally, Republicans, including Ryan, last year's Republican vice presidential nominee, have tried to protect military programs.

"The momentum has shifted to those in the caucus who believe that the only savings we're ever going to get are going to be the sequester savings," said Bell.

Those fiscal conservatives believe Obama will not negotiate with them or agree to any significant cuts in social programs.

He added that it was possible that in the absence of a deal, Congress could provide some legislative language that gives domestic agencies and others some flexibility in making their cuts, rather than accept them in their current, across-the-board form.

Some Democrats are voicing concern the cuts could do serious economic damage.

"I think there should be a sense of urgency, because ... we're looking at an economy struggling to recover and the number of people who we want to have jobs who are still unemployed," said Democratic Senator Jean Shaheen of New Hampshire.

"A failure to take action on what we know is going to have a significant impact on that is simply unacceptable," said Shaheen, a member of the Senate Armed Services and Appropriations committees.

Northrop Grumman, which builds electronics and unmanned surveillance planes, warned that profits this year would fall sharply due to the increasing pressure on the defense budget.

"Our nation needs a balanced, strategic approach to our fiscal challenges ... not blind, indiscriminate budget cutting" Northrop Grumman Chief Executive Wes Bush told an earnings conference call.

LAYOFFS DETAILED

The Pentagon has begun to detail its cost-cutting plans in workforce and regional terms. It has enacted a freeze in civilian hiring, a move that hits employment for veterans since 44 percent of civilian defense employees are vets.

The military services also are planning to lay off temporary or contract employees, which could affect up to 46,000 workers. They will also delay routine maintenance of ships and aircraft that had been planned for the third and fourth quarters, officials said.

The Navy estimates its planned cuts will reduce spending by $1.4 billion along the East Coast, including canceling $271 million in maintenance at shipyards in the Norfolk, Virginia, area and $81 million in aircraft maintenance at Cherry Point, North Carolina.

The Navy also is planning to cancel $681 million in spending in California, $339 million in the Pacific Northwest, $299 million in Florida, $197 million in the U.S. Northeast and $110 million in Hawaii, officials said.

If automatic spending cuts under sequestration go into effect on March 1, the Navy would have to cut a further $4.08 billion in spending through the end of the current fiscal year, over and above the $6.3 billion it is trying to reduce now.

Those cuts would require further delays in repairs and a reduction in the number of steaming and flying days, the Navy said. The Navy might also have to reduce the number of carrier strike groups in the Middle East, it said.

The Army and Air Force also are expected to implement spending reductions before March 1 and are due to submit their plans to Deputy Secretary of Defense Ashton Carter later this week.

(Additional reporting by David Alexander, Patricia Zengerle, Phil Stewart and Andrea Shalal-Esa; Editing by Fred Barbash, Mary Milliken and Peter Cooney)

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U.S. Vice President Joe Biden (L) and President Barack Obama (R) depart following Obama's remarks after the House of Representatives acted on legislation intended to avoid the ''fiscal cliff,'' at the White House in Washington January 1, 2013. The Republican-controlled House backed a tax hike on the top U.S. earners shortly before midnight on Tuesday, ending weeks of high-stakes budget brinkmanship that threatened to spook consumers and throw financial markets into turmoil.

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House Speaker John Boehner (R-OH) arrives to speak to the media on the ''fiscal cliff'' on Capitol Hill in Washington, December 21, 2012.

WASHINGTON | Wed Jan 2, 2013 11:13pm EST

WASHINGTON (Reuters) - In the wake of bruising fights in their own ranks over the "fiscal cliff" and aid for victims of superstorm Sandy - Republicans in the U.S. House of Representatives open a new Congress on Thursday more divided than ever.

While their leader, Speaker John Boehner, seems in no danger of losing his position because of the divisions, his ability to speak for his membership in the House appears greatly diminished.

That could not come at a worse time for Republicans as they prepare for their next attempt to get more spending cuts out of President Barack Obama. They will try to use the debt ceiling - and Obama's request to raise it - as leverage, as they did in 2011.

But if the final days of this Congress were indicative of things to come, Republicans will have a rough time effectively using their majority in the House against Obama, who even Republicans acknowledge is at the top of his game following the Democrat's re-election in November.

The fiscal cliff battle to avert steep tax hikes and spending cuts that were due to kick in at the start of this year proved gut-wrenching for Republicans.

Obama's demand for a tax hike on the rich challenged a core principle that has guided Republicans for decades: No new taxes. Ever.

Yet, late on New Year's night, 85 Republicans in the House did just that, voting to raise income taxes on household income of more than $450,000 a year.

Some of the Republican Party's biggest stars were among the 85 - including Boehner and Paul Ryan, the 2012 Republican vice presidential candidate, who is seen as a conservative anchor.

But 151 House Republicans stood in defiance, leaving Boehner in the unenviable position of having to rely on opposition Democrats to pass major legislation.

Earlier in the fiscal cliff fight, Boehner suffered a humiliating defeat when his "Plan B" solution - which would have limited the tax hikes to income of $1 million a year or more, got so little support he had to cancel the vote.

No sooner had the fiscal cliff battle ended than Boehner found himself in trouble with other Republicans over aid for victims of Sandy, the second costliest storm in U.S. history, which smashed New York and New Jersey coastal communities in late October.

Legislation providing disaster relief to New York, New Jersey and other East Coast states was delayed. A House Republican aide said that given Republicans' frustration with the fiscal cliff bill and its lack of significant spending cuts, "it was not a good time to immediately vote on $60 billion in new spending."

"I don't enjoy saying this. I consider myself a personal friend of John Boehner's," said Republican Representative Peter King of New York. "It pains me to say this, but the fact is that the dismissive attitude that was shown ... toward New York, New Jersey and Connecticut typifies, I believe, a strain in the Republican Party."

Earlier, King had condemned House inaction on Sandy as a "knife in the back."

Republican Representative Michael Grimm, also of New York, said of Boehner's refusal to bring the disaster bill to a vote: "There was a betrayal. There was an arrogant judgment that is going to cost I think the trust of the American people."

Ironically, Grimm first won his seat in Congress in 2010 with the help of conservative Tea Party activists who sometimes show displeasure with disaster aid spending.

By midday on Wednesday, Boehner had changed course, promising a House vote by week's end on a $9 billion down payment in storm assistance, with a second bill providing $51 billion to be voted on January 15.

TEA PARTY EFFECT

Paul Light, a New York University professor and a specialist on Congress, said the vote on the fiscal cliff bill could mark the start of a "major realignment" in the run-up to the 2014 congressional elections and the 2016 presidential race.

Republicans who voted for the legislation "are going to have to find a home. They're not going to find it with the Tea Party," Light said.

He said that Republicans who were uncomfortable with the Tea Party could begin aligning themselves more closely with a dwindling band of centrist Democrats.

Congressional Republicans, especially in the House, have been buffeted for two years by the Tea Party, which helped them win control of the House in 2010.

Boehner had to navigate Tea Party demands throughout the 2011 fight over raising U.S. borrowing authority or risking a historic government default.

In rapid succession, Tea Party-fueled battles were waged over infrastructure investments, farm subsidies, payroll tax cuts and the fiscal cliff.

At the core of the disputes was whether the government should be made smaller, forcing Boehner to balance that demand with the need to govern and keep the federal government operating in an orderly way.

For all the heartache over the past several weeks as Republicans fought with one another over whether to let taxes on the rich go up, many see better days ahead.

"By and large, people are probably happy to have it behind them. This was obviously the worst part of the fiscal debate," said one House Republican staffer, referring to the tax hikes.

The staffer added, "Republicans get to point out that we still have a $1 trillion deficit and ask Democrats what kind of spending cuts, entitlement reforms they are willing to do to fix it."

Republicans feel that will be an easier lift for them - one that they can sell to the American public as they move on to the fight over the debt ceiling.

(Editing by Fred Barbash and Peter Cooney)

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A statue of the United States first President, George Washington, is seen under the Capitol dome in Washington January 2, 2013.

WASHINGTON | Thu Jan 3, 2013 1:11am EST

WASHINGTON (Reuters) - The new 113th U.S. Congress, which convenes on Thursday, is set to take a fresh crack at a number of old, and highly contentious, issues, such as gun control, immigration, the record debt, tax reform and the farm bill.

Here's a look:

GUN CONTROL

President Barack Obama vows to crack down on gun violence in the wake of the school massacre last month in Newtown, Connecticut, the latest in a series of shooting rampages over the past decade.

According to a USA Today/Gallup Poll, 58 percent of Americans now back tougher gun laws, but 51 percent oppose Obama's call to outlaw so-called assault weapons.

A sharply divided Congress is awaiting a broad review of gun violence headed by Vice President Joe Biden.

IMMIGRATION

Hispanic voters last year helped Obama win a second term and Democrats to increase their clout in Congress.

Republicans took notice and want to win Hispanic support in the 2014 elections. One step toward that goal would be for Republicans to become more open to immigration reform.

The big question is how far Republicans would go to provide a path toward citizenship for illegal immigrants, estimated to number up to 12 million in the United States.

SEQUESTRATION

The White House and Congress managed to cut a deal on the "fiscal cliff" by agreeing to a two-month delay to sequestration - automatic spending cuts that were set to take effect on January 1.

Obama and lawmakers now have until March 1 to reach agreement on about $85 billion in spending reductions. If they do not, they will see across-the-board ones kick in, about evenly split between military and domestic programs.

DEBT LIMIT

Obama and Congress likely have until the end of February to raise the U.S. debt limit, now at $16.4 trillion.

Failure to do so would result in an unprecedented U.S. default, a move likely to rattle financial markets worldwide.

Obama says he will refuse to allow the debt limit to become a political bargaining tool again.

But Republicans do not seem be willing to raise it without extracting major spending cuts, mostly from government programs such as Social Security and Medicare.

FARM BILL

Congress gave itself a new deadline, September 30, to complete an overdue five-year, $500 billion farm bill that withered in election-year acrimony in 2012.

The House version proposed the deepest cuts in a generation for food stamps for the poor. But fiscal conservatives want more cuts in food stamps as well as farm subsidies.

The bills produced last year by the House and Senate agriculture committees would have cut between $23 billion and $35 billion. They will dig deeper in the months ahead.

It will be the first time Congress began work on a farm bill in one session and had to refile it in the new session.

HURRICANE SANDY RELIEF

Under pressure from fellow Republicans inside and outside of Congress, including New Jersey Governor Chris Christie, the Republican-led House is expected to move quickly in coming weeks to approve a long-delayed relief package for victims of superstorm Sandy in New York, New Jersey and Connecticut.

SENATE FILIBUSTER

Senate Majority Leader Harry Reid is fed up with Republican procedural roadblocks commonly known as filibusters.

So Reid, to the outrage of Republicans, vows to try to change the rules - unless both sides enter some sort of an agreement to make the chamber work more efficiently.

VIOLENCE AGAINST WOMEN

Obama's fellow Democrats will take another crack at trying to renew the 1994 Violence Against Women Act, which was championed nearly two decades ago by Biden, then a senator.

The measure is designed to combat domestic abuse, but became a legislative vehicle in Congress last year for Democrats and Republicans to jockey for political position.

(Reporting By Thomas Ferraro; Editing by Marilyn W. Thompson and Peter Cooney)

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1 of 7. U.S. House Speaker John Boehner (R-OH) arrives to speak to the media on the ''fiscal cliff'' on Capitol Hill in Washington, December 21, 2012. Boehner said on Friday that congressional leaders and President Barack Obama must try to move on from House Republicans' failed tax plan and work together to resolve the looming U.S. ''fiscal cliff.''

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