UPDATE: Obama deputy campaign manager Stephanie Cutter scoffed at the attack on a conference call with reporters, calling it "laughable."
"They are taking the president’s remarks out of context," Cutter said, noting that the next sentence from Obama called for Congress acting to increase public sector jobs.
"The president was merely pushing back on the notion that we have some bloated government," she added, saying that state and local governments have already cut out the waste and further cuts as Romney suggests would impact vital services.