Sequester

by

OK. No one cares about the sequester

No one cares about the sequester.  Or maybe, no one knows about it.  Or maybe everyone is just tired of Congress.

Here is Mike Luckovich today with a history of our recent financial crises.

Gee. I don't know why you think all this is my fault.

Gee. I don’t know why you think all this is my fault.

No wonder the general public doesn’t care right now.  And they probably won’t care until cuts start to hurt them.  Let’s face it:  both sides are using those old techniques of  putting forward the arguments that make the best case for their point of view.  The Republicans are right in that it won’t hurt for a little while – maybe a month or so.  And the Democrats are right that this whole exercise is unnecessary and, in the long run not helpful to recovery.

Thomas Mann and Norman Ornstein who wrote the excellent book, “It’s Even Worse Than It Looks”, have an excellent piece in today’s Washington Post titled “Five myths about the sequester”.

1. Blame Obama — the sequester was his White House’s idea.

Identifying the origins of the sequester has become a major Washington fight. Bob Woodward weighed in recently with a Washington Post op-ed making the case that the idea began in the White House. He’s right in a narrow sense, mainly because he focuses on the middle of the 2011 negotiations between Obama and Republican lawmakers. If you look before and after, a different picture emerges.

In our view, what happened is quite straightforward: In 2011, House Republican leaders used their new majority to force their priorities on the Democratically controlled Senate and the president by holding the debt limit hostage to demands for deep and immediate spending cuts. After negotiations between Obama and House Speaker John A. Boehner failed (Eric Cantor recently took credit for scuttling a deal), the parties at the eleventh hour settled on a two-part solution: immediate discretionary spending caps that would result in cuts of almost $1 trillion over 10 years; and the creation of a “supercommittee” tasked with reducing the 2012-2021 deficit by another $1.2 trillion to $1.5 trillion. If the supercommittee didn’t broker a deal, automatic spending cuts of $1.2 trillion over the next decade — the sequester — would go into effect. The sequester was designed to be so potentially destructive that the supercommittee would surely reach a deal to avert it.

The sequester’s origins can’t be blamed on one person — or one party. Republicans insisted on a trigger for automatic cuts; Jack Lew, then the White House budget director, suggested the specifics, modeled after a sequester-like mechanism Congress used in the 1980s, but with automatic tax increases added. Republicans rejected the latter but, at the time, took credit for the rest. Obama took the deal to get a debt-ceiling increase. But the president never accepted the prospect that the sequester would occur, nor did he ever agree to take tax increases off the table.

And of course no deal has been reached yet.

2. At least the automatic cuts will reduce runaway spending and begin to control the deficit.

What runaway spending? The $787 billion stimulus was a one-time expenditure that has come and gone. Under current law not including the sequester, non-defense discretionary spending as a share of the economy will shrink to a level not seen in 50 years. Defense spending grew substantially over the past decade, but that pattern has slowed and will soon end. Additional reductions must be achieved intelligently, tied to legitimate national security needs.

…

The annual budget deficit is projected to fall by almost 50 percent in 2013 compared with the height of the recession. Reducing the deficit over the long term requires going where the money is — boosting economic growth, controlling health-care costs and increasing revenue to handle the expense of an aging population. Deeper discretionary-spending cuts are counterproductive; immediate cuts, as Europe has made recently, could lead to a recession and bigger deficits.

I guess the Republicans want us to be like Greece after all.

And finally, one for the Democrats.

4. The cuts are so large, they will be catastrophic.

The administration has released state-by-state estimates of the sequester and highlighted the cutbacks most likely to harm or inconvenience the public. The reality is not so immediate or dramatic. The damage will accumulate in less visible ways, as irrational reductions in public spending impede economic growth and job creation; reduce investments in education, infrastructure and scientific research; and further disrupt the routines of a modern democracy. The longer the sequester remains in place, the more harm is inflicted.

So it may take a while to feel the cuts.  Maybe long enough for the Obama Administration to submit a sensible budget that everyone can agree on.  And no, I’m not smoking anything.  Just counting on mayors and governors to continue to put the pressure on Congress.

Related articles
by

Still more on sequestration

This morning The Fix by Chris Cillizza included this interesting post by Aaron Blake.  Blake posted four great graphics explaining the impact of the sequester.  I am going to copy 2 of them here, but you should look at the entire post.

Blake explains

First up is Pew’s illustration of the year-by-year spending cuts that are included in the sequester. As you can see, the cuts start out relatively small — less than $75 billion in 2013 — but they grow to more than twice that size by 2021, for a total of more than $1 trillion.

The biggest growth in cuts over that time occurs in the interest payments, but everything except for mandatory spending cuts grow steadily over time.

And then there is this depressing news.  Sequester will not have that big of a positive impact.

There has to be a better way.  Maybe spend some money to put people back to work and let them pay taxes thus increasing revenue?  And we do have to fix the tax code so Facebook executives actually pay taxes.  And maybe we can cut programs and defense more selectively.  This won’t be as dramatic, and it might be slower, but it will hurt fewer people.

Meanwhile, members of Congress of both parties are doing their best to keep funding for their own districts.  Politico quotes Senator Lindsey Graham, an opponent of the sequester

I’m almost relishing the moment all these tough-talking guys say: ‘Can you  help me with my base?’” Sen. Lindsey Graham (R-S.C.), one of the most vocal  critics of the sequester, told POLITICO.

“When it’s somebody else’s base and district, it’s good government. When it’s  in your state or your backyard, it’s devastating,” he added.

Of course Graham’s solution is to do away with the Affordable Care Act or Obama care.  Is the momentum swinging toward a rational budget and solution?  Probably not.

Related articles
by

What’s up with sequestration? Or we should have issued war bonds.

When I looked up sequestration in Merriam Webster, the closest meaning I could find to what is going on with the federal budget is

2
a: a legal writ authorizing a sheriff or commissioner to take into custody the property of a defendant who is in contempt until the orders of a court are complied with
b: a deposit whereby a neutral depositary agrees to hold property in litigation and to restore it to the party to whom it is adjudged to belong
So our tax dollars are being put aside until we pay down the debt or is it cut the deficit?  Back in 2004, the Treasury Department explained the difference this way.

What is the difference between the public debt and the deficit?

The deficit is the difference between the money Government takes in, called receipts, and what the Government spends, called outlays, each year.  Receipts include the money the Government takes in from income, excise and social insurance taxes as well as fees and other income.  Outlays include all Federal spending including social security and Medicare benefits along with all other spending ranging from medical research to interest payments on the debt.  When there is a deficit, Treasury must borrow the money needed for the government to pay its bills.

We borrow the money by selling Treasury securities like T-bills, notes, Treasury Inflation-Protected securities and savings bonds to the public. Additionally, the Government Trust Funds are required by law to invest accumulated surpluses in Treasury securities. The Treasury securities issued to the public and to the Government Trust Funds (intragovernmental holdings) then become part of the total debt.

One way to think about the debt is as accumulated deficits.

So back when Bill Clinton balanced the budget, we did not run a deficit and did not accumulate more debt.

While some on the right would argue that Clinton really didn’t reduce the deficit and he ruined the economy by raising taxes, I seem to remember that things were going pretty well for the average person during the Clinton years.

When George W. came into office he said he wanted to give us taxpayers back our surplus which probably would have been OK if he hadn’t then started 2 wars which we didn’t raise taxes of any kind to pay for.  No war bonds, no special tax assessment (used by state and local governments to pay for things), no general tax increase.  Thus the red ink on the chart above.  Then came what everyone is now calling the Great Recession.  Barack Obama really had no choice but to spend money to get the economy moving again.  We can argue about some of the spending – like saving some of the banks – but much of it work out pretty well, I think.

So now we have the sequester.  This was a deal made in 2011 to keep everything from coming to a halt.  I don’t think that anyone thought at the time that there wouldn’t be another budget deal to keep the cuts from going into effect, but so far no dice.  The New York Times ran an editorial on Sunday which is the best explanation of what the cuts would mean that I have seen.  For example:

NATIONAL SECURITY Two-week furloughs for most law-enforcement personnel will reduce Coast Guard operations, including drug interdictions and aid to navigation, by 25 percent. Cutbacks in Customs agents and airport security checkpoints will “substantially increase passenger wait times,” the Homeland Security Department said, creating delays of as much as an hour at busy airports. The Border Patrol will have to reduce work hours by the equivalent of 5,000 agents a year.

…

AIR TRAFFIC About 10 percent of the Federal Aviation Administration’s work force of 47,000 employees will be on furlough each day, including air traffic controllers, to meet a $600 million cut. The agency says it will be forced to reduce air traffic across the country, resulting in delays and disruptions, particularly at peak travel times.

CRIMINAL JUSTICE Every F.B.I. employee will be furloughed for nearly three weeks over the course of the year, the equivalent of 7,000 employees not working each day. The cut to the F.B.I. of $550 million will reduce the number of background checks on gun buyers that the bureau can perform, and reduce response times on cyberintrusion and counterterrorism investigations.

…

A three-week furlough of all food safety employees will produce a shortage of meat, poultry and eggs, pushing prices higher and harming restaurants and grocers. The Agriculture Department warns that public health could be affected by the inevitable black-market sales of uninspected food.

RECREATION National parks will have shorter hours, and some will have to close camping and hiking areas. Firefighting and law enforcement will be cut back.

DEFENSE PERSONNEL Enlisted personnel are exempt from sequester reductions this year, but furloughs lasting up to 22 days will be imposed for civilian employees, who do jobs like guarding military bases, handle budgets and teach the children of service members. More than 40 percent of those employees are veterans.

The military’s health insurance program, Tricare, could have a shortfall of up to $3 billion, which could lead to denial of elective medical care for retirees and dependents of active-duty service members.

And the list goes on.

The editorial concludes

Last week, Senate Democrats produced a much better plan to replace these cuts with a mix of new tax revenues and targeted reductions. About $55 billion would be raised by imposing a minimum tax on incomes of $1 million or more and ending some business deductions, while an equal amount of spending would be reduced from targeted cuts to defense and farm subsidies.

Republicans immediately rejected the idea; the Senate minority leader, Mitch McConnell, called it “a political stunt.” Their proposal is to eliminate the defense cuts and double the ones on the domestic side, heedless of the suffering that even the existing reductions will inflict. Their refusal to consider new revenues means that on March 1, Americans will begin learning how austerity really feels.

Remember the definition of sequestration I began with?  It is a temporary thing.  The money is supposed to come back to us.  If the sequestration cuts really happen, I can bet you they won’t be temporary.  We are reaping the cost of wars most of us didn’t want and any rational solution will be held up by the same folks who did want to go to war.  We should have had war bonds.

THE VICTORY FUND COMMITTEE CAN HELP YOUR MONEY...

THE VICTORY FUND COMMITTEE CAN HELP YOUR MONEY WIN THIS WAR THROUGH INVESTMENT IN U.S. TREASURY SECURITIES SUITED TO… – NARA – 515674 (Photo credit: Wikipedia)

Related articles