Revenue & Spending
by Patrick Lester, 3/12/2013
Across-the-board federal spending cuts, called "sequestration," have begun. What can be done to undo this damaging budget policy?
Sequestration = Boiling Frogs
One of the primary barriers to fixing sequestration is that it is playing out much like the metaphor of a boiling frog. According to the metaphor, if a frog is placed in a pan of boiling water, it will quickly jump out. But if it is placed in a pan of water that is room temperature, and then only slowly heated to a boil, the frog will not notice the danger and will be slowly cooked to death.
Unfortunately, sequestration's rollout will be similar. Overall, the cuts will be quite draconian. According to the White House, sequestration will impose across-the-board cuts of five percent on most domestic programs excluding entitlements (Medicare is one exception, with cuts of two percent imposed on providers). Most defense spending will be subject to a 7.8 percent across-the-board cut. To make matters worse, the cuts will be compressed into a short, seven-month window, which means that for the rest of this year, there will be nine to 13 percent reductions in agency spending.
Moreover, most of the actual reductions will take place this year. Cuts in subsequent years will be achieved with spending caps that will hold the current cuts in place. The nature of this rollout means that the worst of it, including furloughs of government employees and cuts in important grant programs, will be felt this year. Over the next eight years, the cuts will seem like a continuation of the status quo. Because of this, if sequestration is not reversed this year, it is likely to remain in place for the full nine years. If the cuts and caps stay in place for a full nine years, they will produce a net cut of nearly $1 trillion for federal programs on top of the $1.5 trillion already imposed in earlier rounds of deficit negotiations.
Unfortunately, as in the case of the boiling frog, the cuts will only be felt gradually. The impact on federal employees, for example, is being slowly rolled out through agency furloughs that, in most cases, will not begin until April or later in the year. The impact on states, localities, and nonprofit organizations will be similarly delayed, with grant-related cuts most likely to be felt through reduced grant payments and/or smaller numbers of grants made later in the year.
As in the case of the slowly boiling frog, however, by the time the danger becomes apparent, it may be too late to do anything. The closer we get to the end of the federal fiscal year (September 30), the more likely it is that federal policymakers will become resigned to sequestration as a permanent fact of life.
How Did We Get Here? A Tale of Political Miscalculation
In late February, a controversy erupted in Washington over the origin of sequestration. Republicans have taken to blaming the president after publication of a book (The Price of Politics) by Bob Woodward at The Washington Post, who pointed out in both the book and a follow-up article in the Post, that the idea originated at the White House. While technically true, the White House was reacting to House Republicans who were threatening a default on the federal debt if significant spending cuts were not enacted. To avert the crisis, the White House proposed sequestration as a mechanism to force an agreement on a larger budget deal. Sequestration was never intended to be implemented.
This was the real miscalculation. The White House assumed that sequestration would be so bad that Congress would do whatever was necessary to avoid it. Democrats could not accept the domestic cuts, while Republicans could not accept the cuts in defense spending, so both would negotiate. This turned out to be false. Tea Party-backed Republicans appear willing to accept significant reductions in military spending in return for lower federal spending overall and no tax increases.
The administration’s assumption that the threat of automatic cuts would be so dire that sequestration would never happen was the first miscalculation. The second miscalculation was the decision by the president to sign tax legislation in January that made 82 percent of the Bush-era tax cuts permanent while leaving sequestration unresolved (sequestration was delayed from January to March). This legislation gave congressional Republicans most of what they wanted (permanently lower taxes for the vast majority of households) and little incentive to negotiate further, especially when many are more concerned about being challenged from the right in a primary than they are about public opinion nationally.
The White House signed this legislation assuming that public outrage would force Republicans to the bargaining table. While some polling by the Pew Research Center/USA Today in February found that more Americans would blame congressional Republicans if sequestration occurred, another more recent poll from Gallup indicated that most Americans do not think they know enough yet to say whether sequestration cuts would be bad for the nation or for them personally. Thus, the sequestration battle may still be an inside-the-Beltway battle. The public needs a new frame for the budget debate.
So how do we stop these damaging cuts from happening? What can we do?
One partial answer is to work to ensure that any new flexibility offered is used to the maximum extent possible to redirect the cuts away from vulnerable investments, like education and early childhood programs, and toward corporate subsidies, like those for agribusiness. However, it is important to understand that the flexibility being offered to the president will be limited. According to news accounts, cuts will only be able to be redistributed within agencies (meaning that cuts to education programs, for instance, cannot be redistributed to business-related subsidies in the Department of Commerce). Moreover, any proposed changes will need to be approved by congressional appropriators in both parties, which means that only relatively uncontroversial changes will be possible. And moving the cuts around will do nothing to reverse further reductions over the following eight years, since those cuts will be imposed through lower spending caps overall.
The real solution to sequestration is legislation. Congress created sequestration and only Congress can truly fix it. One possible solution could be a "grand bargain" on a larger deficit reduction package in which new taxes are traded for cuts, reached between the White House and congressional Republicans, but this seems unlikely as long as both sides remain divided over new tax revenues. Another possibility is a spending cuts-only solution, with the cuts refocused on corporate welfare subsidies like those for agribusiness and excessive payments to drug companies in the Medicare program. Unfortunately, no one is currently offering that deal.
The third option is to cancel sequestration outright, with no corresponding tax increases or spending cuts. This option would remove sequestration as a bargaining chip in the ongoing budget negotiations, leaving the various players to negotiate separately over any long-term budget deal without sequestration being used as a point of leverage. At the moment, however, this option has only been put forward by the Congressional Progressive Caucus, including a bill (H.R. 900) introduced by Rep. John Conyers (D-MI). It has not yet been embraced by the Obama administration or most members of Congress. It may receive further consideration, however, if no progress is made on a larger budget deal and the impact of sequestration begins to be felt.
The Center for Effective Government, working with other organizations like the AFL-CIO, Campaign for America’s Future, Economic Policy Institute, and the National Priorities Project, has begun circulating a joint sign-on letter calling for the repeal of sequestration. This letter is open to national, state, and local organizations, and we encourage you to circulate it widely. The economy is still in a fragile state, and pulling a trillion dollars in public spending out of circulation over the next nine years will slow job growth significantly.
Also visit Sequestration Central, our webpage that will be tracking the damaging impact of these cuts over time as they become known. Undoing sequestration will not be easy. But doing nothing ensures it will remain in place. We need to signal policymakers that these domestic programs are simply too important to lose. Join the call to stop sequestration.