Saturday, February 9, 2013

The Sequester: Danger, Will Robinson, Danger!

The alarm bells are ringing furiously in Washington D.C. as the unthinkable appears to now be a real possibility: massive spending cuts--including ones in Defense--will automatically occur on March 1st. President Obama addressed this possibility today in his weekly address:
And right now, if Congress doesn’t act by March 1, a series of harmful, automatic cuts to job-creating investments and defense spending – also known as the sequester – are scheduled to take effect. And the result could be a huge blow to middle-class families and our economy as a whole. 
If the sequester is allowed to go forward, thousands of Americans who work in fields like national security, education or clean energy are likely to be laid off. Firefighters and food inspectors could also find themselves out of work – leaving our communities vulnerable. Programs like Head Start would be cut, and lifesaving research into diseases like cancer and Alzheimer’s could be scaled back. Small businesses could be prevented from getting the resources and support they need to keep their doors open. People with disabilities who are waiting for their benefits could be forced to wait even longer. All our economic progress could be put at risk.
That sounds pretty ominous, doesn't it? Who set up this catastrophic mechanism know as "the sequester," anyway? No doubt, it was a bunch of evil conservatives and tea-baggers, right? After all, there's no way any sane person would have proposed such a thing. Wait, what's that? Obama is the one who set it up? No! Say it ain't so!

The coming sequester is a consequence of the Budget Control Act of 2011, which passed in the House by a vote of 269-161 and in the Senate by a vote of 74-26. President Obama signed it into law on August 2nd, 2011. It was sponsored by Tom Harkin, but was itself produced by the White House and a number of Congressional leaders from both sides of the aisle.

The idea--from the point of view of the White House--was simple: we'll set up this mechanism to trigger automatic cuts to enable the ramming through of our agenda (i.e. tax increases). It will work because the Republicans will back down every time the sequester approaches, in fear of the massive cuts in defense spending that it would entail.

Thus, the sequester was intended to be a sort of Sword of Damocles, forever hanging over the heads of congressional Republicans, insuring that no meaningful cuts to Federal spending would ever occur. Indeed, the plan was to continually use the sequester to avoid cuts while raising taxes.

But after getting its way, more or less, for the last year and a half in this regard, the White House has a serious problem: Republicans appear ready to let the sword fall. Why? Because they realize they're getting snookered. Finally. Charles Krauthammer explains:
Republicans should explain — message No. 1 — that in the fiscal-cliff deal the president already got major tax hikes with no corresponding spending cuts. Now it is time for a nation $16 trillion in debt to cut spending. That’s balance.

The Republicans finally have leverage. They should use it. Obama capitalized on the automaticity of the expiring Bush tax cuts to get what he wanted at the fiscal cliff — higher tax rates. Republicans now have automaticity on their side.

If they do nothing, the $1.2 trillion in cuts go into effect. This is the one time Republicans can get cuts under an administration that has no intent of cutting anything. Get them while you can.
And the President realizes all of this, knows he is no longer in the driver's seat, thus he is turning--once again--to class warfare and fear-mongering as a means of regaining control.

It is high comedy, watching Obama and congressional Democrats posture, bloviate, and wring their hands in angst over this situation, for they are the ones wholly responsible for it. Unwilling to actually cut spending--something that simply has to happen to save the country from it's mounting debt--they devised this scenario assuming they couldn't lose. Wrong. And the President is busying already with a re-imagining of history:
Two months ago, we faced a similar deadline, and instead of making deep, indiscriminate cuts that would have cost us jobs and slowed down our recovery, Democrats and Republicans came together and made responsible cuts and manageable changes to our tax code that will bring down our deficit. This time, Congress should pass a similar set of balanced cuts and close more tax loopholes until they can find a way to replace the sequester with a smarter, longer-term solution.
That's a version of reality he wants to sell, that the previous deal represented some sort of "balanced" approach. But it's nonsense and no one is buying it anymore. What that previous deal actually amounted to:
And in the end, at around 2:00 am EST, a deal was struck and passed overwhelmingly by a vote of 89 to 8. This deal would raise income tax rates and capital gains tax rates on incomes above $400,000 ($450,000 for couples), phase out some deductions for higher incomes, fix the AMT issues that have plagued middle-class incomes earners for years, extend unemployment benefits for another year, and table the looming mandatory cuts for anther two years. In short, it's an agreement to tax the rich and spend some more money, nothing more.

Policy wonks imagine that the agreed-to tax increases will translate into some $600 billion across the next ten years. Such estimates are based on assumptions that never tend to pan out though, since economic conditions are not static. Regardless, let's imagine that things go exactly as planned in this regard. Simple math tells us the revenue increase will be $60 billion per year. So, $60 billion more for 2013. But the extension of unemployment benefits will--all by itself--cost $30 billion. All other things being equal (which of course, they're really not), this deal means about $30 billion in revenue for this year and exactly $0 in spending cuts.
So another "balanced" deal here would mean what? Under the above rubric, maybe some more tax revenues coupled with zero cuts. And let's no forget, the above deal was also loaded with special-interest tax deductions and tax credits. Republicans went along with it, by and large, because it made most of the Bush tax cuts permanent, not because it was full of actual spending cuts. Now, with the sequester looming once again, Obama has no carrots to offer, only a stick: cuts to defense spending.

But it seems that stick is not quite so large as the President had assumed, for there are just too many Republicans prepared to accept the consequences of the sequester. It's Obama and the Democrats who are not, and they don't know what to do about it.

Cheers, all.


  1. Completely unrelated, but I though you'd find this interesting.
    Office of the Historian at the State Department had put a ton of free e-books on-line