Speaking to reporters at the White House, Obama urged lawmakers not to let "political dysfunction" get in the way, and called for a “balanced mix of spending cuts and more tax reform.”
“We have seen the effects that political dysfunction can have,” he said. “It will cost us jobs and hurt our economy.”
Obama offered no specific plan with which to replace the sequester, but urged Congress to pass a smaller package of spending cuts and tax changes to delay sequestration.
The Congressional Budget Office has estimated that allowing the sequestration cuts to go forward would lead to a 0.7 percent decline in growth of gross domestic product this year. The Bipartisan Policy Center estimates it would cost the nation 1 million jobs in 2013 and 2014, while defense industry studies have predicted that more than 2 million jobs could be lost in both defense and non-defense sectors in 2013.
The president said proposals he made to reduce entitlement benefits in talks in December with Speaker John Boehner (R-Ohio) “are still on the table.” Obama agreed in those talks to change the way costs would be adjusted for inflation in government programs, including Social Security and Medicare.
But those talks broke down over differences between Obama and Republicans over what would constitute a "balanced approach" to reducing the deficit.
Republicans argue Obama and Democrats have stubbornly refused to agree to meaningful reductions in entitlement spending, which they argue are the biggest drivers of the deficit. They say the White House must agree to spending cuts and entitlement reforms, especially after a "fiscal cliff" deal in January that raised taxes on wealthier households.
Obama and Democrats said any spending cuts must be coupled with additional tax hikes, particularly by eliminating tax breaks for the wealthy and businesses.
Talks are also likely to be complicated by the difficulties Boehner and Obama have had in the past. After their talks fell apart in December, Boehner vowed he was done negotiating with Obama.
Before Obama's comments, Boehner on Tuesday warned the president not to propose increasing taxes as a way to turn off the sequester.
“President Obama first proposed the sequester and insisted it become law. Republicans have twice voted to replace these arbitrary cuts with common-sense cuts and reforms that protect our national defense," he said in a statement. "We believe there is a better way to reduce the deficit, but Americans do not support sacrificing real spending cuts for more tax hikes.
“The president’s sequester should be replaced with spending cuts and reforms that will start us on the path to balancing the budget in 10 years,” Boehner said.
Obama, for his part, criticized GOP calls for spending cuts, saying: “We can't just cut our way to prosperity.”
In response to Obama's comments, three Republican senators promised to introduce legislation that would replace this year's sequestration cuts to the Pentagon by reducing the size of the federal workforce through attrition.
“While the president last year promised that sequestration ‘will not happen,’ he has declined to address this looming crisis for more than a year," Sens. John McCain (Ariz.), Lindsey Graham (S.C.) and Kelly Ayotte (N.H.) said in a statement.
"In the coming days, we will be introducing legislation — as we did last year — to avoid the first year of defense budget cuts by reducing the size of the federal workforce though attrition as recommended by the Simpson-Bowles Commission. This common-sense approach avoids a damaging self-inflicted wound to America’s security, and we hope the president will join us in this effort,” they said.
A new CBO report issued on Tuesday found the fiscal-cliff deal will help reduce the deficit in 2013 to $845 billion, but also forecast larger deficits down the road.
The across-the-board automatic cuts known as the sequester were set up in the August 2011 debt-ceiling deal as a way to force Congress to come up with a long-term deficit plan.
Both Republicans and Democrats have decried the cuts, saying they should be avoided. But the threat of the sequester has failed to get the two parties to agree to a plan, and there has been growing resignation in recent weeks that the cuts will actually be implemented.
Previewing Obama's address, a White House official on Tuesday morning said the president would emphasize that the scheduled cuts would hurt the Pentagon and the broader economy.
"With our economy poised to continue to strengthen this year, the president will make clear that we can't see another self-inflicted wound from Washington," a White House official said. "The president will urge Congress to come together and act to ensure these devastating cuts to defense and job-creating programs don't take effect."
During a presidential debate with Mitt Romney last fall, Obama said the sequester "will not happen."
The White House official said Obama would emphasize that "uncertainty around the sequester is already having a negative impact on our economic growth, and if it was to take effect it would cost hundreds of thousands of American jobs and have devastating impacts on our economy."
"The sequester was never intended to be policy, but was meant to force Congress to act to further reduce the deficit in a balanced way," the official said.
The deal to lift the debt ceiling in 2011 created both the sequester and a supercommittee of lawmakers who were asked to come up with a plan to replace the sequestration cuts. The committee failed, and a total of $1.1 trillion cuts over the next 10 years were scheduled to begin in January.
A fiscal-cliff deal shifted some of the first two months of cuts into future appropriations bills and replaced the rest with a change to the way retirement accounts are taxed. But the deal still left $85 billion in cuts to begin in March.
The Obama request comes as Senate Democrats are meeting in Annapolis, Md., for their annual retreat. Democrats are discussing a mix of tax increases and possible spending cuts to replace the sequester.
The top House and Senate Republicans on the Armed Services committees, Rep. Buck McKeon (R-Calif.) and Sen. James Inhofe (R-Okla.), said in a joint statement Obama’s proposal is “better late than never.”
But they have little optimism for the details of his plan.
“We are, however, concerned that his proposal will include the same mix of tax increases and defense cuts that Democrats have advocated for in the past,” the lawmakers said. “Refusing to consider reforms to the mandatory spending that is driving our debt crisis, while using our troops as a piggy bank to keep unsustainable spending programs on life support, will have both fiscal and strategic consequences.”
The GOP-led House has passed legislation that would avert the sequester, but both bills were passed in the last Congress. It is unclear if Republican leaders will call for another vote this month. Both bills passed narrowly, with the Dec. 20 vote clearing 215-209. House Republicans control eight fewer seats in the 113th Congress as a result of the 2012 elections.
—This story was last updated at 2:07 p.m.
Jeremy Herb contributed.