Revenue & Spending
by Patrick Lester, 2/26/2013
As March 1 approaches, across-the-board federal spending cuts, called sequestration, appear almost certain to occur. Republicans and Democrats are not negotiating to resolve the looming crisis. Neither seems sufficiently motivated to compromise.
The problem is not that sequestration is nothing to worry about. According to an analysis by the Center on Budget and Policy Priorities, sequestration will cut most domestic programs by about 5.3 percent and most defense spending by 7.7 percent. Moreover, these cuts will be compressed into a short, seven-month time frame, which will nearly double their impact for the rest of the year to nine and 13 percent respectively.
As a result of these cuts, federal agencies will be forced to furlough hundreds of thousands of employees at a time when the national unemployment rate stands at 7.9 percent. According to the Bipartisan Policy Center, sequestration may cost the nation at least a million jobs. Health research grants will be cut. Meat inspections will be curtailed. These are just a few of the many examples of damage that will be done.
Few in Washington think sequestration is a good thing. Even congressional Republicans, who generally support reduced government spending and who supported its creation as part of the Budget Control Act of 2011, are trying to pin blame on President Obama by referring to it as "the president's sequester."
So what's the problem? The key sticking point remains what it has been: a difference between Republicans and Democrats on taxes. President Obama and congressional Democrats are calling for sequestration to be replaced with a balanced package of tax loophole closures for corporations and the wealthy and selected cuts in defense and corporate welfare programs, while Republicans are calling for sequestration to be replaced with an alternative package of domestic spending cuts alone.
So how will this standoff be resolved? Where do we go from here?
Plan A: Embarrass Republicans into Supporting Revenue Increases
The White House is reportedly confident that the president will win this showdown, just as they believe he won a similar battle over raising taxes on the wealthy earlier this year as well as another faceoff with Republicans over raising the debt ceiling. In each case, they believe the president won not by negotiating with his opposition in Congress, but by going over their heads and appealing directly to the public.
This new strategy explains the administration's focus on public events that highlight the damage that sequestration would do. On Feb. 19, the president made his case forcefully while surrounded by first responders.
"That's the choice," he said. "Are you willing to see a bunch of first responders lose their job because you want to protect some special interest tax loophole? Are you willing to have teachers laid off, or kids not have access to Head Start, or deeper cuts in student loan programs just because you want to protect a special interest tax loophole that the vast majority of Americans don't benefit from?"
So far, the strategy seems to winning the battle for public opinion. A February poll by Pew Research Center/USA Today found that 49 percent of Americans would blame congressional Republicans if sequestration occurred. Only 31 percent would blame the president, while 11 percent would blame both.
Back in Washington, the president called Republican leaders in Congress on February 21, but no progress was made. Behind the scenes, no negotiations have been occurring at the staff level, either. Many in Congress believe the real negotiations will not begin until March, after sequestration has begun and pressure builds for a deal.
Meanwhile, Senate Democrats are preparing to move a bill, called the American Family Economic Protection Act, sometime this week. If enacted, the bill would end sequestration for the rest of the calendar year and replace it with a package of revenue increases and spending cuts.
On the revenue side, the bill would institute a 30 percent minimum tax rate on those making more than $1 million per year, a proposal commonly known as the Buffett Rule and named for the wealthy investor, Warren Buffett, who said he should not pay a lower tax rate than his secretary. The proposal would raise $54 billion over ten years. The bill also includes $55 billion in spending cuts, split equally between defense savings from drawing down the American military presence in Afghanistan after 2014 and an equal reduction in farm subsidies.
The bill is expected to be stopped by Senate Republicans, however, who will likely filibuster it. In April 2012, another bill on the Buffett tax came to a similar end, failing on a largely party-line vote of 51-45, well short of the 60 needed to overcome a filibuster. (The only two members to cross party lines were Republican Susan Collins of Maine, who voted against the filibuster, and Democrat Mark Pryor of Arkansas, who supported it.)
Why Republicans May Not Budge
With sequestration looking increasingly likely, the key question is whether Republicans will be more likely to negotiate once sequestration has begun. There are many reasons to think they may not.
First, some in the Republican Party want sequestration to occur. If anything, they think it is too small. Sen. Rand Paul (R-KY) epitomized this view when he gave the Tea Party response to President Obama's State of the Union Address on Feb. 12. "Not only should the sequester stand," he said, "many pundits say the sequester really needs to be at least $4 trillion to avoid another downgrade of America's credit rating."
Second, when President Obama agreed to enact the American Taxpayer Relief Act (ATRA) earlier this year, he agreed to sign into a law a permanent extension of 82 percent of the Bush-era tax cuts. While the bill raised over $600 billion over ten years from upper-income taxpayers, it also effectively deprived the president of further leverage in the ongoing budget debate. Extending those tax cuts was the top GOP priority. Making most of them permanent gave congressional Republicans most of what they wanted and little incentive to negotiate further.
Third, calling this a "victory" for the president has played into the hands of those in the Republican Party who are more determined than ever not to let the president "win" again. "The president got his higher taxes," wrote Speaker John Boehner (R-OH) in a Wall Street Journal op-ed. "The president's sequester is the wrong way to reduce the deficit, but it is here to stay until Washington Democrats get serious about cutting spending." (In reality, most of the deficit reduction that has occurred to date has been due to spending cuts.)
Fourth, much of the damage from sequestration is inflicted on government employees, not generally considered a GOP constituency, and much of it is concentrated in the metropolitan Washington, DC, area. As a result, national polls do not necessarily reflect the sentiments that most congressional Republicans face back home, especially when many are more worried about a potential primary challenge from the right than anything else.
And finally, although GOP messaging claiming that sequestration was the president's idea seems to be getting little traction in the national media, it does seem to be resonating in the conservative media. "Here's a tip. If you are reckless enough to create a crisis for the nation, you had better know how to fix it," said Fox News correspondent Greta Van Susteren on Feb. 20. The conservative echo chamber appears to be helping to insulate congressional Republicans from broader, mostly negative public opinion.
Plan B: A Government Shutdown?
With Republicans unwilling to bargain, some congressional Democrats may be considering ratcheting up the stakes. "Democrats no longer see the sequester as sufficient to force Republicans to cave on new revenues," wrote Greg Sargent at The Washington Post. "Rather, they increasingly see the looming government shutdown deadline of March 27th as the real means for them to force a GOP surrender."
This strategy would be particularly dangerous. So far, congressional Republicans have indicated that they would prefer to avoid a government shutdown by passing a "clean" budget bill that continues current levels of funding for federal agencies – minus the across-the-board sequestration cuts. If Democrats oppose this position, they risk being blamed for a government shutdown if it occurs, or at least sharing in the blame.
At this point, the end game is far from obvious, but this much is clear: the president deserves credit for using the bully pulpit to highlight the stark choices facing the nation, including tradeoffs between the nation's first responders and educators on the one hand, and tax loopholes for corporations and the wealthy on the other.
But he equally deserves blame for so easily signing off on permanently extending most of the Bush-era tax cuts. Doing that deprived him of much of the leverage he needed to achieve his policy goals.
Unfortunately, what's done is done. At this point, the best strategy is probably to put as much pressure on Washington policymakers as possible during the four weeks between March 1 and March 27, when a shutdown will occur without further action by Congress. One resource to help educate policymakers is a new web page called Sequestration Central, set to launch tomorrow on the Center for Effective Government's website. This page, which you'll be able to find at SequestrationCentral.org, will be constantly updated with the latest information about how sequestration is being implemented.
After March 27, however, if congressional Republicans refuse to budge, the best option may be to simply cancel sequestration outright, with no corresponding spending cuts or tax increases.
Austerity in a weak economy is a demonstrably bad idea. This has been shown to be true in Europe, where even the International Monetary Fund (IMF) is reconsidering its austerity policies. In the U.S., sequestration is expected to trim about 0.5 percent from the already weak level of growth expected this year.
Putting an end to sequestration would put an end to the destructive budget battles that have crowded out nearly every other issue in Washington over the past two years. It would clear the way for Congress to focus on a more important issue: fixing the nation's economy.
Editor's note: This article has been updated since its original publication date.