Sunday, March 3, 2013

The story of the sequester

On Friday, the deadline for the federal spending sequester passed without an agreement between Democrats and Republicans on what portions of the federal budget to cut. Many may wonder exactly what the sequester is and how the nation reached the point where $85 billion will be cut from federal spending with no one in Washington taking responsibility.

The sequester has its origins in the debt limit debate of the summer of 2011. As the nation’s credit rating was downgraded and the federal government neared the end of its ability to borrow, President Obama pressed Congress to raise the debt limit. In exchange for doing so, House Republicans insisted on spending cuts. By 2011, President Obama was spending nearly a trillion dollars per year more than 2008, President Bush’s most expensive year, according to the White House Office of Management and Budget. Nevertheless, President Obama and the Democrats fiercely resisted any attempts to rein in spending. For their part, Republicans were equally tenacious in their opposition to tax increases.

The stalemate was broken by the sequester. According to investigative journalist Bob Woodward, whose book, “the Price of Politics,” details the negotiations from the summer of 2011, the stalemate was broken by an agreement to delay the decision on taxes and spending cuts. Part of the agreement was a “doomsday” plan in which taxes and cuts would automatically take place if Congress failed to take action by January 1, 2013. The combination of automatic tax increases and spending cuts came to be known as the “fiscal cliff.” The compromise was signed into law as the Budget Control Act of 2011.

The 2012 election threw a wrench into the plans of both Congress and President Obama for dealing with the cliff. Both parties expected to win a convincing victory. Neither party expected that the election would end in a stalemate, a continuation of the status quo in which the Democrats controlled the presidency and the Senate and Republicans kept control of the House of Representatives, but that is exactly what happened. The election results meant that the stalemate of 2011 was doomed to be repeated.

The tax section of the fiscal cliff was settled on New Year’s Day with a compromise that raised taxes on upper income Americans and let the payroll tax holiday expire for everyone else in what the Wall St. Journal called the “largest tax increase in two decades.” Part of the tax cliff compromise included extending the deadline to deal with the spending cuts, the sequester, until March 1.

As the deadline for the sequester approached, President Obama and the Democrats reneged on the agreement that tax increases would be balanced with spending cuts. In December 2012, the Republicans offered a tax reform package that would have raised $800 billion in revenues without raising tax rates. The plan would have closed loopholes and eliminated some deductions for the wealthy. Now President Obama, according to Factcheck, wants the revenue package previously offered by Speaker Boehner along with the tax increases that he has already received.

After the fiscal cliff deal, Republicans warned President Obama that they would accept no more tax increases. Mitch McConnell (R-Ky.) wrote in an op-ed on Yahoo, “That debate is over. Now the conversation turns to cutting spending on the government programs that are the real source of the nation’s fiscal imbalance.”

Because the tax increases in January were automatic, the Republicans had no leverage. If they had not compromised with the Democrats, tax rates would have gone up even more and impacted virtually every American. In the sequester, the opposite is true: Spending will be cut automatically if Congress does not act.

President Obama and the Democrats desperately want to avoid any sort of cuts to federal spending. Nevertheless, by tying sensible cuts to tax hikes that the Republicans find unpalatable they have guaranteed that the sequester will happen. There are three possible reasons for this strategy.

First, having agreed to the spending cuts only to get an increase in the debt ceiling in 2011, the Democrats now want to make the cuts as haphazard and painful to American voters as possible. If they can cause pain to the voters and make them believe that the Republicans are responsible, it may give them a victory at the polls in 2014 that will guarantee future tax hikes and avoid any possibility of reining in spending.

Second, Obama undoubtedly expects that if he can force the Republicans to cave into his demands once again that it will further splinter the party. With the Republicans fragmented, demoralized and pointing fingers at each other, it will be easy for Obama to gain new concessions in the future. He will need them. The federal government will reach its debt limit again in a few months.

Third, political observer Dick Morris theorizes that Obama wants the sequester to take effect so that he can blame Republicans for the economic downturn that his policies are causing. Writing in The Hill, Morris notes that Obama and the Democrats have imposed a multitude of new taxes totaling $300 billion. According to an analysis by the Washington Post, the cuts for 2013 only come to $85 billion, 28 percent of the amount that Obama’s tax increases have removed from the economy.

President Obama has attempted to cast the blame for the sequester on Congress, but Bob Woodward who was present during the 2011 negotiations disputes that. Writing in the Washington Post, Woodward described how the idea for the sequester originated with Jack Lew, at the time the White House chief of staff, and Rob Nabors, the White House chief of congressional relations. According to Woodward, President Obama personally approved the plan before it was presented to Senate Majority Leader Harry Reid (D-Nev.).

Woodward reported that representatives of the Obama Administration told him that he would “regret doing this” after he pointed out the inconsistencies in the Obama Administration’s statements. The exchange is detailed in the Wall St. Journal, which also points out that administration officials have attempted to intimidate at least two other journalists who have published stories critical of Obama.

There were several congressional attempts to limit the impact of the sequester. Factcheck agrees that Republicans in the House passed two bills in 2012 that would have replaced the sequester’s defense cuts with entitlement cuts. These bills died in the Senate. In the current term, two bills were proposed in the Senate, but neither passed. A Democratic bill would have replaced the sequester cuts with alternative cuts and more tax increases. The Republican version would have required President Obama to propose alternative cuts without tax increases.

In last days of February, Republicans offered to give President Obama the power to choose which programs to cut in order to mitigate the pain of the sequester. President Obama threatened to veto the bill if it passed Congress, instead opting for the across-the-board, untargeted cuts. The White House told the Defense News, “There is no way to cut spending this dramatically over a seven-month period without drastically affecting national security and economic priorities. Moreover, [it] would explicitly protect pork barrel spending and, in so doing, would reduce the President’s ability to protect national security.”

In reality, even though the sequester cuts almost a trillion dollars from federal spending over ten years, total federal spending will increase even if there is no compromise to avert the cuts. According to an analysis of Congressional Budget Office spending figures in Forbes, the sequester cuts are subtracted after adding in inflation adjustments and spending exempted from the cuts. The result is that spending will increase by $110 billion after the sequester cuts are accounted for.

On Friday, the sequester officially took effect as Obama ordered federal agencies to begin the initial $85 billion in cuts. As the Wall St. Journal pointed out, President Obama may be the biggest loser if Americans find that spending cuts really aren’t so bad after all.

Originally published on Examiner:

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