Tag: Sequestration

Exposing the Absurdity of Washington’s Anti-sequester Hysteria

To save America from the supposedly “savage” and “draconian” budget cuts caused by sequestration, President Obama has instead asked Congress to approve an alternative fiscal package containing additional tax increases.

So why is the sequester so bad? Does it slash the budget by 50 percent? Does it shut down departments, programs, and agencies?

Sounds good to me. We need to reduce the burden of government spending, so some genuine budget cuts would be very desirable.

The pro-spending lobbies in Washington certainly are acting as if spending would be “cut to the bone.” As documented by my colleague Tad DeHaven, they’re claiming horrible things will happen.

So what’s the real story? Well, the Congressional Budget Office today released its annual Budget and Economic Outlook, and Tables 1-1 and 1-5 allow us to see the “brutal” impact of the sequester.

As you can see from this chart, the sequester will “cut” spending so much that the budget will grow by “only” $2.4 trillion over the next 10 years.

Sequester 2013

Rather anticlimactic, I admit. No widows dying in snowbanks. No blood flowing in the streets.

So you can let the women and children back in the room. It turns out that all the hyperbole and hysteria about the sequester is based on the dishonest Washington definition of a budget cut—i.e., when spending doesn’t rise as fast as projected in some artificial baseline.

Yes, some parts of the budget are disproportionately impacted, such as defense. But even the defense budget climbs over the 10-year period and the United States will still account for close to 50 percent of global military outlays when the dust settles.

The bottom line is that there’s no reason to worry about the sequester and there’s certainly no reason to go along with Obama’s plan to replace the sequester with a tax-heavy budget deal.

The Sequester May Not Be ‘Fair,’ but It’s Real and It Would Slow the Growth of Government

Much to the horror of various interest groups, it appears that there will be a “sequester” on March 1.

This means an automatic reduction in spending authority for selected programs (interest payments are exempt, as are most entitlement outlays).

Just about everybody in Washington is frantic about the sequester, which supposedly will mean “savage” and “draconian” budget cuts.

http://danieljmitchell.wordpress.com/2011/11/01/sequestration-is-a-small-step-in-right-direction-not-something-to-be-feared/If only. That would be like porn for libertarians.

In reality, the sequester merely means a reduction in the growth of federal spending. Even if we have the sequester, the burden of government spending will still be about $2 trillion higher in 10 years.

The other common argument against the sequester is that it represents an unthinking “meat-ax” approach to the federal budget.

But a former congressional staffer and White House appointee says this is much better than doing nothing.

Here’s some of what Professor Jeff Bergner wrote for today’s Wall Street Journal:

You know the cliché: America’s fiscal condition might be grim, but lawmakers should avoid the “meat ax” of across-the-board spending cuts and instead use the “scalpel” of targeted reductions. …Targeted reductions would be welcome, but the current federal budget didn’t drop from the sky. Every program in the budget—from defense to food stamps, agriculture, Medicare and beyond—is in place for a reason: It has advocates in Congress and a constituency in the country. These advocates won’t sit idly by while their programs are targeted, whether by a scalpel or any other instrument. That is why targeted spending cuts have historically been both rare and small.

Bergner explains that small across-the-board cuts are very reasonable:

The most likely way to achieve significant reductions in spending is by across-the-board cuts. Each reduction of 1% in the $3.6 trillion federal budget would yield roughly $36 billion the first year and would reduce the budget baseline in future years. Even with modest reductions, this is real money. …let’s give up the politically pointless effort to pick and choose among programs, accept the political reality of current allocations, and reduce everything proportionately. No one program would be very much disadvantaged. In many cases, a 1% or 3% reduction would scarcely be noticed. Are we really to believe that a government that spent $2.7 trillion five years ago couldn’t survive a 3% cut that would bring spending to “only” $3.5 trillion today? Every household, company and nonprofit organization across America can do this, as can state and local governments. So could Washington.

And he turns the fairness argument back on critics, explaining that it is a virtue to treat all programs similarly:

Across-the-board federal cuts would have to include all programs—no last-minute reprieves for alternative-energy programs, filmmakers or any other cause. All parties would know that they are being treated equally. Defense programs, food-stamp recipients, retired federal employees, the judiciary, Social-Security recipients, veterans and members of Congress—each would join to make a minor sacrifice. It would be a narrative of civic virtue.

It’s worth noting, however, that the sequester would not treat all programs equally. Defense spending is only about 20 percent of the budget, for instance, yet the Pentagon will absorb 50 percent of the savings (though defense spending still increases over the next 10 years).

http://danieljmitchell.wordpress.com/2011/10/10/will-republicans-choose-sequester-savings-or-a-supercommittee-surrenderAt the risk of oversimplifying, the sequester basically applies to so-called discretionary spending. So-called mandatory spending accounts for a majority of federal spending, but it is largely exempt, so entitlement reform will still be necessary if we want to address the nation’s long-run fiscal challenges.

Boehner’s Bogus Debt Ceiling Line in the Sand

Speaker Boehner says that the House will not pass another increase in the debt ceiling unless the White House and congressional Democrats agree to cut spending by an equal or greater amount. That’s the same line in the sand that Boehner drew during the previous debt ceiling showdown in 2011.             

As I noted in a recent piece, the 2011 agreement to increase the debt ceiling accomplished no such thing: 

The deal that Republicans ultimately agreed to — The Budget Control Act of 2011 — promised to reduce the growth in spending over the next ten years by $917 billion. In exchange, the president got to increase the debt ceiling by $900 billion. According to the House Republican leadership, the trade was a victory because the debt increase was smaller than the spending cuts. Of course, that’s nonsense. Not only were there no real spending cuts, the federal debt has proceeded to jump another $1.8 trillion since the president signed the bill less than a year and a half ago. 

The other part of the deal hasn’t turned out any better. The BCA created a “Super Committee”, tasked with achieving $1.2 trillion in deficit reduction over ten years. When the committee inevitably failed, the agreement stipulated that the deficit reduction instead be achieved through a combination of automatic cuts to defense and non-defense spending (“sequestration”). Republicans and Democrats promptly made it clear that they would figure out a way to avoid the spending cuts. 

The sequestration spending cuts that Republicans and Democrats want to avoid allowed the president to raise the debt ceiling by another $1.2 trillion. In sum, the federal debt will have gone up $2.1 trillion in exchange for no spending cuts in the present and a promise to increase spending at a lower rate over the next ten years. 

There is zero chance that the Democrats would (or will) agree to a deal that seriously cut $1 for every $1 increase in the debt ceiling. Heck, I’d be shocked if a majority of Republicans would support it. The House Republican leadership obviously knows this—and it’s not like the GOP is prepared to “shoot the hostage” to begin with—so expect another debt ceiling increase with no substantive spending reforms.  

Happy New Year, Washington

Rep. Gerald E. Connolly, a Democrat representing the federal workforce, frets over the impact of sequestration or any alternative on his Fairfax County district: “Undoubtedly, we will take a hit….It’s going to result in a steady retrenchment in government investment in both the civilian and defense sectors. That’s going to affect employment and the robustness of our economic growth in this region.”

Of course, this is a “hit” – or more likely a nick – that comes after a doubling of the federal budget in a decade. And in the past weeks, the Washington Post has done a good job of reporting the impact of all that taxed and borrowed money on the Washington area. For instance:

The Washington region has emerged from the recession looking even more affluent compared with the rest of the country, boasting seven of the 10 counties with the highest household incomes in the nation, new census numbers show.

With a median household income surpassing $119,000, Loudoun County heads the list. Fairfax County, at nearly $106,000, is second. Both have held the same positions for several years running….

The rankings in the 2011 American Community Survey released Thursday expand Washington’s dominance among high-income households, reflecting a regional economy that was largely cushioned as the recession yanked down income levels elsewhere. Household incomes rose in most counties around Washington last year, even as they continued to sink around the country.

The stability of an economy built on the pillars of the federal government, its legions of contractors and a flourishing high-tech sector is evident in the income rankings.

In 2007, before the recession began, five counties in suburban Washington made it into the top 10. By 2010, there were six. The seven in the latest ranking is an all-time high.

And where does that money go? To housing, certainly (thanks, America!), as the Post noted in an article on the “red-hot real estate market”:

It didn’t look like a house anyone would pay $400,000 extra for.

Several walls inside the gray townhouse with blue trim were streaked with water stains. The first floor was noticeably uneven. And termites had dined in front.

The big pluses: It was 2,850 square feet, had off-street parking, and was in walking distance of Union Station [and thus of Capitol Hill]….

Two weeks and 168 bids later, the house — in the 800 block of Fourth Street NE — was sold this month for $760,951 to an unidentified buyer….

While much of the nation is still struggling to emerge from a historic housing-market meltdown, the District is reliving its boom days. High rents, low interest rates, low inventory, and a flood of new residents in their 20s and 30s are making parts of the city feel like it’s 2005 again.

The median home sale price in the District is up 14 percent from last year, according to RealEstate Business Intelligence (RBI)….

Bullish real estate agents say it is only a matter of time until those areas catch up as well. There is no talk of “bubbles” or fallout from a dive off the “fiscal cliff.” People are still moving to the Washington area, where the population grew by 122,000 from 2010 to 2011, Census Bureau data show.

And for those with money left over after paying Washington real estate prices, there are the finer things in life, the things that used to be for hedge fund managers in New York and tech innovators in Silicon Valley:

Defense Lobby’s Scare Campaign Falls Flat

The defense contractors and their allies and advocates in Washington have been beating the drum against sequestration for over a year. They’ve commissioned studies purporting to show that sequestration will throw hundreds of thousands of people out of work. They’ve embarked on a “stop sequestration” road show, and boosted spending on advertising and gimmicks, including the Countdown to Sequestration clock.

And they’ve held press conferences, including one today at the National Press Club that I attended.

The contractors’ full-court press isn’t working. Polls show that the American people are more interested in cutting defense spending than domestic spending to reduce the deficit. (See, for example, The Economist/YouGov poll, .pdf, Q15) And they, and especially Republicans and independents, are opposed to paying higher taxes to fund a bloated Pentagon (.pdf, Q56).

The public isn’t falling for the lobby’s scare campaign for a few reasons. First, U.S. military spending remains near an all-time high in real, inflation-adjusted dollars. Second, sequestration would reduce the budget to 2007 levels, and reductions along those lines are consistent with other post-war drawdowns. Third, while Americans overwhelmingly support the troops, they appreciate that not every dollar spent on the military is spent wisely.

The United States will retain a state-of-the-art military even if total Pentagon spending declines by 10 to 15 percent. Such reductions might actually induce policymakers to be more responsible when it comes to military intervention abroad. The leading opponents of sequestration are big fans of open-ended, nation-building missions, but they are a small and shrinking minority. Most Americas have learned the painful lessons from the wars in Iraq and Afghanistan, and they are determined to avoid those sorts of expensive and counterproductive wars in the future.

A smaller U.S. military that costs less money cannot be expected to be everywhere all the time. U.S. troops should not be the first responders to every 911 call. Other countries will have to step forward to take responsibility for their own defense, and contribute their fair share to address common security challenges.

GOP Groups’ Ads on Sequestration, Defense Jobs Are Misleading

It is no surprise that the defense contractors want to protect their profits by getting taxpayers to pony up more money. Now they have secured the support of Crossroads GPS in a commercial against Senate candidate and former Virginia governor Tim Kaine. The Crossroads ad follows similar ones from Kaine’s challenger, George Allen, and the National Republican Senatorial Committee. All three ads claim that spending cuts under sequestration will result in devastating job losses to the defense industry and Virginia; the Crossroads ad claims 520,000 jobs will be lost. But these estimates are wildly inflated and represent the short-term interests of the defense industry, not the American taxpayer.

In actuality, the cuts, if they occur, will be evenly divided between the Pentagon and the rest of the discretionary budget. They are a very modest share of total federal spending over the next decade, and the assertion that the cuts will lead to massive job losses have been thoroughly refuted here, here, and here. Indeed, there is good reason to believe that such cuts will have beneficial effects over the medium- to long-term, if the savings are returned to taxpayers, and not merely plowed into other federal spending.

All of these pro-GOP ads get the lost jobs number from a study commissioned by the Aerospace Industries Association and authored by George Mason economist Stephen Fuller. Last Friday, the Cato Institute hosted a forum—which included Fuller—that considered the effects of military spending cuts on employment and the economy. We discussed the positive impact that cuts in Pentagon spending can have in the wider economy, and even in a state like Virginia that is more dependent than other states on federal spending. The Wall Street Journal’s Steve Moore argued we should just let sequestration happen (I agree). As the Washington Post reported, Economist Benjamin Zycher summed up the hypocrisy of conservatives claiming the defense budget produces jobs:

“Conservatives . . . are highly dubious about the purported [gross domestic product] and employment benefits of federal domestic spending, as illustrated by the meager effects of the Obama stimulus fiasco,” he said. “There’s no particular reason to believe that defense spending is different.”

I wish that organizations like Crossroads GPS were as committed to saving the taxpayers money as they are to electing Republicans. I’d also like it if they relied on objective facts, not statistics designed to protect the narrow interests of an industry that relies overwhelmingly on taxpayer dollars. We wouldn’t expect Republicans to accept the teachers unions’ claims about job losses from cuts in the Department of Education. Why, then, do they promote these phony numbers by the defense contractors?

On Thursday, Dan Mitchell and I will be discussing this issue—the effects of sequestration—on Capitol Hill. It is not too late to register, but space is limited, so act now.

House Appropriations Chairman Hal Rogers on the Budget

Following the House’s passage of a six-month continuing resolution last week (my comments on the CR here), House Appropriations Committee Chairman Hal Rogers (R-KY) chatted about fiscal policy with a couple of reporters on C-SPAN. The interview did nothing to change my 2010 opinion that the House leadership handing Rogers the chairman’s gavel was “about as inspiring as re-heated meatloaf.”

While Rogers is correct that domestic discretionary spending represents a relatively small share of total spending (approximately 12 percent) and that entitlement spending is the bigger problem, his comment that “we’ve just about reached the bottom of the barrel” on such spending is a stretch. Domestic discretionary spending has dropped, but after a sizeable increase during the 2000s. And arguably more important than the dollar amount this category represents are the activities being funded. For example, the federal government shouldn’t be spending a dime on the Department of Education, which is mostly discretionary spending.

When it comes to the other side of the discretionary spending coin—military spending—Rogers parrots the standard GOP line that sequestration would be “disastrous.” That’s nonsense. Perhaps Rogers is worried that cuts to the bloated military budget will crimp his ability to dole out the goods to defense contractors back in his district (see, for example, Rogers’s $17,000 drip pan).

That leads to Rogers’s most galling comments. When asked about earmarks, the “Prince of Pork” bemoaned his alleged inability to help shovel taxpayer dollars to his district since the practice was halted two years ago. Rogers said that “it hurts me that I can’t advocate for that governmental unit that’s in some desperate need.” What hurts me is that Rogers has to nerve to cite the Constitution to justify legislative earmarking (i.e., Congress’s “power of the purse”). As my colleague Roger Pilon and I have noted, the debate over the power of the executive versus that of the legislative branch to spend is constitutionally relevant and important. As Roger says, however, “it’s the growth of spending, most on matters unauthorized by the Constitution that is far and away the larger problem.” Federal subsidies to state and local governments largely belong in the unauthorized category.