Crisis? What Crisis?

02.06.13

Sequester Looms as Democrats and GOP Make Little Effort to Resolve Impasse

Obama has called for a short-term fix to forestall the budget ax falling on March 1, but with inactivity on both sides, the sequester may well be allowed to happen as a result of indecision and brinkmanship.

Most Americans are familiar by now with the phenomenon of sequestration, the budget ax scheduled to fall on March 1 if the White House and Congress can’t agree on a more measured plan to cut spending.

There’s been remarkably little debate about it considering the consequences, but President Obama broke his silence Tuesday with a seven-minute statement in the White House briefing room appealing for a short-term fix to get past the March 1 deadline, and stating that proposals he made to House Speaker John Boehner in 2011 as part of an ill-fated grand bargain “are still very much on the table.”

Republicans needed to hear that assurance from the president. When Obama put entitlement reform on the table in 2011, he was in a far weaker position than he is today. Now safely reelected and with an approval rating of 57 percent in the latest Zogby poll, he might be tempted to renege on those earlier concessions. But Obama has his eye on the big picture, and the health of the economy would be negatively affected by draconian spending cuts.

“Our economy right now is headed in the right direction and it will stay that way as long as there aren’t any more self-inflicted wounds coming out of Washington,” he said, urging Congress to come up with a smaller package of spending cuts and tax reforms “to delay the economically damaging effects of the sequester for a few more months” to give lawmakers time to come up with an alternative. It’s what Congress just did with the debt ceiling extension, putting it off for three months until mid-May.

What’s most striking about the looming sequester is the lack of any real activity on either side, Democrat or Republican, to resolve the impasse. Instead, both parties seem to be sleepwalking their way to sequester, calming themselves with the rationale that letting it happen might not be that big a disaster. And they’re right—up to a point. “Sequestration is a disgrace, a congressionally made disgrace,” says Jim Kessler, of Third Way, a centrist Democratic group. “But it’s not the fiscal cliff—it can happen and life goes on."

Going over the fiscal cliff would have meant the U.S. defaulting on its debts and precipitating a global financial meltdown. Sequester takes a chunk out of defense spending and a chunk out of discretionary domestic spending, but it spares Social Security, Medicare and Medicaid, and Pell grants. Republicans would rather accept deep cuts in defense spending than give Obama any more tax revenue, and with Democratic priorities protected, how bad can it be? Obama seems to be taking the same approach he did on the debt ceiling, leaving it up to Congress to figure a way out, but Congress so far is punting.

Cantor may want to change the conversation to “Making Life Work,” but the job of elected officials is to make government work.

House Majority Leader Eric Cantor gave a much ballyhooed speech Tuesday at the conservative American Enterprise Institute on school choice, making college affordable, and easing visa requirements for foreign students. Using the rubric “Making Life Work,” he said there’s “no greater moral imperative than reducing the debt,” but it’s time to “focus on what lies beyond the fiscal debate.” 
Cantor didn’t mention sequestration, and as one of the GOP leaders with an eye to the future, he apparently has concluded that if he can’t change the dynamic, it’s time to change the conversation.

Kessler quips that with almost a month left before the deadline, there’s plenty of time to reach agreement: “In the life of a fruit fly, that’s 70 incarnations.” He notes that sequestration and its sister doomsday, the continuing resolution that funds government and runs out on March 27, are not as big, action-enforcing events as the debt ceiling. “They’re headaches, not tumors,” he says. “You can survive it, it’s just bad policy.”

Third Way is a policy shop, and it's been quietly shopping a budget plan that would replace the sequester with an equal amount of spending cuts, but done in a different way. The defense cuts would go through the orderly legislative process of putting together a budget, “using a scalpel and not an ax.”

The discretionary cuts would be eliminated and replaced with entitlement cuts. The theory here is that domestic discretionary spending has been battered enough and it’s where all the investing in the future is done—education, health research, energy, roads and bridges. Why should the government jump through hoops to make sure Warren Buffett doesn’t pay more for Medicare while kids pay more for school lunches?

Republicans, having swallowed a tax hike on the wealthy, have been adamant about no more new revenue, but Third Way would reach back to the presidential campaign and borrow Mitt Romney’s idea of eliminating loopholes in the individual tax code. Romney suggested capping deductions for people who make more than $250,000. The Third Way plan would cap deductions at $35,000 for high earners, with an exemption for charitable deductions. That would raise $400 billion and affect just the top 2 percent.

Kessler has no illusions that this plan will be the breakthrough that everyone seeks, but it does illustrate a need for creative thinking to energize a debate that appears the victim of inertia on both ends of Pennsylvania Avenue. “It reminds me after a kid’s birthday party, there’s one helium balloon not quite up to the ceiling,” says Kessler. “People are exhausted.”

If the sequester is allowed to happen as a result of indecision, and brinkmanship, it will have the intended effect of shrinking the deficit but at what cost? Cantor may want to change the conversation to “Making Life Work,” but the job of elected officials is to make government work.