Save the Sequester

Okay, December 13 is less a deadline than a suggestion. The current continuing resolution (CR), the product of October’s government shutdown, doesn’t actually expire until January 15, giving Congress an additional month to come to an agreement. But the December 13 date is still important, because the House is scheduled to recess from the 13th until January 7, with the Senate getting back one day earlier, leaving little time for the expected last‐​minute maneuvering.

So far, the negotiations appear to be dominated by what won’t be considered. House Budget Committee chairman Paul Ryan had suggested a willingness to trade some loosening of the sequester’s short‐​term spending caps in exchange for long‐​term entitlement reforms. But Senate Majority Leader Harry Reid rejected that idea out of hand, calling it “a stupid trade.” Reid says he is not interested in taking up Medicare reform at this time, and he claims there is no need for Social Security reform. “The program is not about to go broke,” Reid says, “so take it easy on Social Security.”

Republicans, of course, are not willing to accept additional tax increases on top of the $620 billion included in last December’s fiscal‐​cliff deal and the more than $1 trillion included in Obamacare over the next ten years, although rumors persist that the GOP may accept some other revenue increases, such as a hike in airport security fees. More disappointingly, House Speaker John Boehner has reportedly rejected any cuts in agricultural subsidies as part of any budget deal.

In the absence of a larger agreement, House Republicans may push for another short‐​term CR, funding the government probably through April 15. If that CR holds spending to levels agreed to under the sequester, that would be a small but valuable step forward, reducing government discretionary spending by $21 billion from the funding level in 2013. Nondefense discretionary spending would remain largely untouched, and could actually increase slightly, from $468 billion to $469 billion, while defense spending would be cut from $518 billion to $498 billion, roughly the level of defense spending in 2008, not including spending for overseas operations such as the wars in Iraq and Afghanistan.

But as December 13 gets closer, expect to hear howls of anguish — and the usual predictions of doom — from both sides of the aisle. Continuing the sequester will result in “extremely damaging repercussions,” Republican members of the House Appropriations Committee wrote in a letter to Speaker Boehner. Appropriations Committee chairman Harold Rogers (R., Ky.) is pushing for at least a two‐​year delay in scheduled sequestration spending cuts. On the other side of the aisle, Minority Whip Steny Hoyer (D., Md.) warns that allowing next year’s sequester cuts “will hurt our country, will hurt our economy, and will put at risk our national security.” 

This, despite the fact that almost none of the predicted catastrophes from the last round of sequester cuts actually happened. As the Washington Post pointed out,

While Ryan is on record as supporting the sequester in the absence of a larger deal on entitlements, reports persist that the most likely budget compromise will involve loosening the sequester to allow additional spending for the priorities of both parties. Democrats would get an extension of unemployment insurance for some 1.3 million Americans, whose benefits would otherwise expire on December 31. Republicans would get additional defense spending. Both sides might find room for additional infrastructure spending, a chance to bring home the bacon before the 2014 midterm elections. As Jim McTague recently wrote in Barron’s, “Political pork could emerge as the one nexus of self‐​interest where the two competing parties meet to bridge their differences.”

Spenders in Congress are also able to point to a temporary reduction in budget deficits, which are projected to fall to just $378 billion by 2015, before rising again to $895 billion by 2023. Despite the fact that the long‐​term debt outlook continues to be grim, Congress can easily use the short‐​term reprieve to continue ducking any tough choices.

The consequences of abandoning the sequester would extend well beyond the length of any budget agreement. Even a brief postponement of the scheduled cuts would set a precedent, making it virtually impossible to reinstate them later. That would of course lead to an additional $717 billion in spending, assuming a return to the pre‐​sequester baseline. And it would also probably signal an end to any attempt at fiscal restraint by Congress. In that case, we could expect a return to the massive spending increases of the Bush and early Obama years.

No one wants another government shutdown. Economic impact aside, a shutdown would give Democrats an opportunity to change the subject from the continuing disaster that is Obamacare. But in their understandable desire to reach a deal, Republicans should not give up on the only effective brake on spending and growth of government enacted in years. Save the sequester.