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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Thursday, March 07, 2013

The Sequester: Will It Finally Mark Some Move in Governing this Country?

Finally.  This is our third attempt at an article discussing the infamous government spending "sequester" for you.  Our first two tries were basically descriptive explanations of the size and design of what we thought would be largely mechanical cutbacks in federal government spending obligations.  But these cuts seem to have turned into a political tool, and while we don't want to sound political in our discussions here, we find it hard to avoid that.  More, there are new developments on this almost hourly, and some of them seem to change the color of what's going on.

The Mechanics of the Sequester
We still want to begin with a couple of nuts and bolts.  The sequester was instituted in the midst of the debt ceiling battle in the summer of 2011.  In renewing the government's legal borrowing authority, Congress was requiring actions to reduce the deficit.  So it demanded a specified amount of spending cuts and the expiration of the Bush-era tax cuts, effectively raising taxes.  No one actually intended for these to take effect in the blunt way they were enacted.  But during the run-up to the November 2012 election, neither was anyone in particular in either party interested in doing anything meaningful toward reducing spending or raising taxes.  So the New Year's Day 2013 deadline approached.  Just in the nick of time, as we explained to you on January 8, the tax portion was dealt with, at least in part, but the nearly all of the spending part was postponed to March 1.  Still, no meaningful work was done during January and February toward a reasoned package of spending reductions.  So the proportional cuts took effect on the day of the deadline.

The $85.3 billion in cuts amount to about 6% of the so-called discretionary portion of the budget, the portion subject to sequester, or 2-1/2% of the entire $3.6 trillion budget.  This is not a dramatic amount.  By contrast, the January 1 payroll tax hike is raising an estimated $95 billion this fiscal year, according to the Congressional Research Service, and total revenue increases in the fiscal cliff legislation are about $400 billion.[1]  Also, the sequester refers not to cash outlays, but to budget spending authority.  Some of that authority is reflected in immediate cash outlays, such as employee wages, but some goes out later, such as the payments for supplies and equipment that are ordered on the basis of the budget authority.  Some estimates for the actual cash outflow during fiscal 2013 are about $43-44 billion, just over half the total amount of the budget authority sequester.  One more caveat is that these "cuts" reduce spending growth, but they do not effect an absolute drop in spending this year from last year.  Recent Congressional Budget Office projections indicate that total outlays will be $3.553 trillion this year, compared to fiscal 2012's $3.538 trillion.[2]  Benefit and health programs will continue to grow noticeably, more than offsetting the discretionary "cuts".

Are the Cuts Mechanical – or Political?
The way the sequestration legislation is written, fixed dollar amounts of spending restraints are assigned to departments and agencies by a fixed percentage formula.  On the surface, this looked like a mechanical approach not requiring formal policymaking, since it seemed that Congress and the Administration weren't really making substantive policy decisions.  A listing of the allocations by department and program was published by the Office of Management and Budget (OMB) on the night of March 1 when the cuts began to take effect; the list is 70 pages long.[3]

Importantly though, and more significant than we first understood, department and program directors can decide what specific resources to cut.  We had anticipated operational and administrative matters like delaying the ordering of aircraft by, say, two months until October, or reducing TSA agents' overtime.  But we're starting to hear about more visible and meaningful changes that in fact appear to involve policymaking that is going on without the benefit of public discussion.  Here are three:

1.  Don't try to go to the White House the next time you're in Washington and expect to have a tour.  In perhaps the most straightforward "cut", these tours have been cancelled until further notice.  Several people have noted, though, that the tours are given by volunteers or can even be self-guided; apparently, the spending cut is coming through the reassignment of the security officers who let people in.  So the American people cannot presently visit "the people's House".  Even second-graders are upset.  The total saving is said to be $18,000 a week.  Some private donors are already offering to make up the difference.

2.  More seriously, the Department of Homeland Security has released some illegal immigrants who had violated laws and were awaiting deportation hearings.  We have seen press reports that more such releases are planned.  These immigrants are not "free", but remain under DHS supervision, obviously a cheaper method than holding them in custody.  Whether this method is prudent in the face of their alleged criminal behavior seems to be another question altogether.

3.  The aircraft carrier Harry S. Truman has been held in port in Newport News, Virginia, rather than getting deployed to the Persian Gulf.  Again, surely cheaper, but since there is only one carrier in that region now, we can wonder if it's advisable not to send the second one, given the level of violence there and the presence of American troops.

Fox News also reports[4] that an email from an Agriculture Department director to his staff, which they quote, alerts the staff that cuts need to have the negative public impact that has already been described to Congress.  Senior department officials denied that was the intention, but the impression is certainly there that the cuts are being orchestrated, not just sliced mechanically.

Positive Movement? Perhaps.
As we began writing this "third try at an article about the sequester", we feared that it would conclude with this politically oriented complaint, and we were uncomfortable with that, for two reasons.  First, we try to present factual information that is as little slanted as possible, since our aim is to help you understand the issues better so you can form your own judgments more thoughtfully.  Second, we are genuinely concerned that the Federal Government – the Congress and the Administration – are so focused on politics at present that the underlying welfare of the country and our people is being diluted as a rationale for discussion and action.  It all seems to be about one-upmanship.

However, we have to say we are encouraged by the outreach the President has been making to Republicans over the last couple of days.  He's had dinner with a dozen Republican Senators at a fine Washington restaurant and invited Representative Paul Ryan to the White House for lunch.  Representative Ryan did not comment after his lunch, but several Senators indicated that their meeting was obviously intended to begin some dialogue and they thought this was constructive.  The President is perhaps impressed with various recent poll numbers showing that his support has eroded abruptly, with, for example, the Gallup daily poll moving from a net approval rating of +13% to zero in just over a week.[5]

So at present, we don't want to make too much of these overtures at mutual conversation and we don't know how the government's business will evolve going forward.  But there finally seems to be at least some reason to look for constructive movements toward budget agreement that include policy decisions that are out in the open and negotiated in good faith.  We can at least hope so, which is more than we had when we started writing here.

[1]Jane Gravelle.  "The 'Fiscal Cliff': Macroeconomic Consequences of Tax Increases and Spending Cuts".  Washington, D.C.: Congressional Research Service.  January 9, 2013. Page 4. Courtesy of the Federation of American Scientists website:



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