May 12, 2012 – 12:38 p.m.
Political Economy: The Real Sequester
By John Cranford, CQ Columnist
It’s too soon to say whether House Republicans last week engaged in a futile exercise or a pre-emptive strike when they passed a bill to trim a small collection of entitlement programs by $237 billion over nine years — including cuts in food stamps, Medicaid and social services grants — and in exchange to repeal a portion of the automatic spending “sequester” that is scheduled to take effect next January.
Senate Democrats have no interest in considering the House bill, which suggests that the GOP-controlled chamber was just talking to itself. Still, there are real fears about what will happen if the sequester’s across-the-board spending cuts are allowed to bite.
That’s why, at year’s end after the election, earnest negotiations to avoid the automatic cuts are expected. To that end, the House GOP has made its negotiating position clear, and it will be up to the Democrats to make an offer.
What’s interesting — and even arguably bizarre — about this preliminary positioning is the degree to which it amounts to whistling past the graveyard. The conversation is focused entirely on the first year of the automatic cuts. But the sequester would actually curtail spending in each of the next nine years. Lawmakers, however, are saying nothing about the cuts in years two through nine, which presumably would inflict far more pain.
It’s a classic example of congressional backloading: schedule the bad news for down the road and hope that conditions change so that the problem goes away of its own accord. Or at least that the “fix” is minimal. The alternative minimum tax and the Medicare doc fix are case studies.
The math for the automatic cuts is compelling. If the sequester law isn’t changed, $98 billion will be stripped in January from enacted discretionary appropriations for fiscal 2013. What everyone is ignoring is that an estimated $720 billion more will be cut from currently expected levels of appropriations over the eight years from fiscal 2014 through 2021. That will amount to a sevenfold increase over the first-year sequester that already has many worried.
Lest anyone be confused, these sequester cuts would come on top of roughly $841 billion in discretionary savings enacted last August in tandem with the debt limit increase and already taking effect. Many of the same appropriations accounts that will bear the brunt of the August savings will be hit a second time by the sequester cuts.
Overall, that will amount to roughly a 15 percent annual discretionary spending reduction, using “baseline” estimates from the Congressional Budget Office and sequester calculations from the Center on Budget and Policy Priorities.
It’s easy to see why the first year of automatic cuts have agitated folks on the right and the left. Virtually every agency and program will undergo the same uniform percentage reduction. Military accounts will be sliced by a total of almost $55 billion, or an estimated 7.5 percent each. Non-defense accounts will be reduced by $39 billion in the aggregate, or 8.4 percent each.
It will be ugly, and Congress, which jealously guards its handle on the federal purse, hates the lack of control, even though it wrote the law, of course.
Waiting for the Light
The fundamental concern here is that lawmakers of all stripes appear to be acting as if the elves and the fairies will save them from their own devices. What else explains how lawmakers can just assume that the first-year sequester will be avoided in the end and how they can stay silent on the latter years of automatic cuts?
Political Economy: The Real Sequester
Wishing the sequester away and making that happen are very different things, however. Almost any bill to prevent the sequester will require enactment of offsetting budgetary savings to prevent the deficit from widening. That just sends us back to last year.
Recall that the sequester was intended to be a draconian weapon to force negotiations on entitlement spending cuts and revenue increases. Lawmakers aiming for a serious assault on the deficit a year ago understood they needed to go after entitlements and revenue because discretionary spending now accounts for only a third of the budget. And entitlements, not discretionary spending, are the source of the vast majority of future spending increases.
But we saw how well the threat of sequester worked in the weeks leading up to Thanksgiving, when a joint select committee with special powers couldn’t find a compromise on entitlements and revenue. Lawmakers who had committed themselves to savings then accepted the path of least resistance, allowing almost all the promised cuts to fall on the discretionary side of the budget.
Even if there were a consensus that some discretionary programs are unnecessary, it’s hard to imagine that such a consensus would embrace the scope of those cuts already enacted and those waiting to be enforced through the sequester. As time draws near, it will become more evident to Congress that it will need to find an alternative to the full nine years of automatic cuts.
For now, though, lawmakers seem mostly inclined to wait for intervention — divine, electoral or otherwise — to light the path to that alternative.