Government Spending

Why the Sequestration Cuts Shouldn't Be Part of Any Larger Fiscal Cliff Deal-Making.

So we're facing a "fiscal cliff," Ben Bernanke's term for the following things scheduled to take place on January 1, 2013.

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So we're facing a "fiscal cliff," Ben Bernanke's term for the following things scheduled to take place on January 1, 2013:

…the expiration of a payroll-tax cut, the expiration of the Bush-era tax cuts, and the advent of mandatory spending cuts known as "sequestration."

That succinct summary is courtesy of Temple Law's Jan C. Ting, who also lays out the mechanics of sequestration with equal concision in the Philadelphia Inquirer:

…as part of last year's agreement to raise the federal debt ceiling, Congress pledged to cut spending by $1.2 trillion over 10 years. It agreed that if neither a congressional "supercommittee" nor Congress itself could designate the cuts by the end of 2012, they would happen automatically, divided evenly between defense and non-defense spending. These automatic cuts are known as sequestration.

As every tradesman, businessman, cook, and student knows, it's helpful to break complex tasks down to smaller, complex chunks that are easier to handle. When you apply that thinking to the fiscal cliff, one thing immediately becomes apparent: Other than coincidental timing, the sequestration cuts have nothing to do with the payroll tax cut and the Bush tax rates.

In fact, all three major components to the cliff are clearly self-contained and should be treated on their own, rather than as some sort of an OMG FML situation that seems to be overwhelming a federal government that hasn't passed a budget since 2009.

Back to sequestration: The cuts that will kick in in 2013 are the result of an agreement brokered only a year-plus-change ago to goose up the credit limit of the U.S. government. Back in 2011, the feds got the right to put another $2 trillion on the nation's Discover card in exchange for making $900 billion in immediate cuts and another $1.2 trillion in cuts from expected spending over the next decade.

There should be absolutely no room for negotiating away the pathetically small amount of spending reduction the government imposed on itself to raise the debt-ceiling by $2 trillion. For god's sake, we're talking about trims of around $110 billion annually. The 2013 budget alone will spend about $3.8 trillion and using constant dollars, federal spending has increased 50 percent over the last decade (see table 1.3, center column, page 27). The simple fact - amply illustrated by the chart somewhere to the right - is that sequestration cuts, split between defense and non-defense discretionary spending, amount to very little in terms of total federal spending. If such tiny, wafer-thin cuts cannot in fact be enforced, then we should simply give up now and really max out the credit cards and party like there's no tomorrow. Seriously, go ahead and just finish the whole tub of ice cream already.

The one good argument against the mechanics of sequestration is that it enforces across-the-board cuts that take indiscriminately from the overall budget in each affected area. That's not smart but fear of that sort of jagged-saw approach to budgets was supposed to be one of the spurs to get the so-called Super Committee to really roll up its shirtsleeves and reach an agreement. It didn't work, of course, which is a testament to fecklessness of the people involved.

In view of the fact that the holiday season is upon us, Congress might make one slight alteration to the way in which the cuts would be imposed: allow the affected units of government to decide how to make the cuts. This would let Defense Secretary Leon Panetta - last seen hyperventilating into a paper bag over how any real and imagined cuts to the military would be "devastating" - to take a knee and figure out which less-than-defensible outlays he would prefer to cut. According to the Office of Management and Budget (OMB), Panetta needs to come up with about $55 billion in cuts from a base amount of $550 billion (see page 7; note that the total Defense budget is much higher than that amount, but some military spending in not subject to sequester). If he can't do that in a single day, he should be stripped of his office and sent back to the CIA, which I understand is looking for new leadership.

The OMB has helpfully prepared an encyclopedic guide to what other government functions are either exempt or open to sequestration, with relevant dollar amounts listed. 

For starters, Congress could zero out the salary and support staff for Sen. Kent Conrad (D-N.D.), who more than any single person in the country is the reason Congress hasn't passed a federal budget in so long. Conrad - inevitably described as a "budget hawk" and a "deficit hawk" - remains the chairman of the Senate Budget Committee until he retires next year. He has not produced a document to be voted on in years and, in a charateristically delayed bid to join the crew of the Scooby-Doo All-Star Laff-A-Lympics, he explained his decision not to seek re-election by saying he would rather "spend my time and energy trying to focus on solving the nation's budget woes than be distracted by another campaign." That's comedy gold and if I'd be worried about my starting position on the Yogi Yahooeys if I were Huckleberry Hound or Grape Ape.

To be sure, zeroing out Conrad's last few paychecks and firing his staff would only amount to loose change and be purely symbolic. But then again, that's all the sequestration cuts amount to. So it seems like a good start. Given the spade work that OMB has already done, Congress might impose a deadline for any discretion-based sequestration-related trims to be announced by December 1, thereby giving maximum time for those affected to figure out their next moves. That would also give Congress more time to deal with the other fiscal cliff components before year's end. If it wants to.