The Sequester is Not Too Big, It is Too Stupid

By :: February 28th, 2013

The latest chapter in Washington’s never-ending fiscal drama is about to play out in tomorrow’s sequester--a word most Americans should never have had to learn. For all the partisan noise about these automatic spending cuts, it is important to keep in mind that they are both relatively small and very stupid.

First, the size. As the chart below shows, the amount of money at issue is modest--at least in federal budget terms. The blue bars represent CBO’s total spending projections for 2013. The red bars (if you can even see them) represent the amount that would be cut as a result of the sequester.

2013 Sequester

To put it in more understandable dollar terms, 2013 defense spending would be cut by about $43 billion, or roughly 7 percent. Non-defense discretionary spending—the money for foreign aid and most federal agencies—would be cut about $29 billion, or roughly 5 percent. Mandatory spending would be cut by $13.9 billion off a base of more than $2 trillion, or 0.7 percent. Truth be told, the overall size of the spending cuts is not a big deal.

This, of course, is where stupid comes in.

The across-the-board nature of the spending cuts has been well-noted. Federal agencies have little or no discretion to target spending cuts by, say, getting rid of obsolete or poorly-run programs. They have to cut them all, the good ones and the bad ones alike. They can’t lay off poorly performing workers, they must furlough everyone.

The cuts also suffer from poor timing. With the economy still struggling to find its footing, even modest fiscal austerity seems myopic at best.   

The division of the cuts is just as dumb. Mandatory programs represent 57 percent of all federal spending—and will absorb far more over the long run--yet only about 16 percent of the sequester will come from payments to Medicare providers and a small amount of other mandatory spending (Medicaid, Social Security, and Medicare benefits are entirely exempt from the sequester). The defense budget, by contrast, is about 18 percent of all federal spending yet the military will suffer half of the sequester cuts.

Keep in mind that the $85 billion reflects cuts in budget authority for 2013. Actual outlays, or dollars out  the door, will be cut by only half that much between now and the end of the fiscal year in September. On the other hand, because a year’s worth of cuts would be squeezed into just seven months, agencies may feel them more severely.

Finally, revenues are totally excluded from this exercise. You’d think that a government that collects $2.7 trillion in taxes and other revenues might find a few billion more in inefficient and inequitable tax subsidies if deficit reduction is so important.

This exercise in mindless cutting is, more than anything, a plea for a serious budget process. Flawed as it was, the system in place over the past decades made a certain amount of sense. The House and Senate budget committees set  spending targets and instructed appropriations committees to work within those limits. The tax-writing committees were similarly given revenue targets to meet.

Those of us who lived through those budget years are hardly nostalgic. Congress shamelessly gamed and manipulated the targets, often aided and abetted by whoever was in the White House. Entitlements were largely exempt from the process. But it was better than what we’ve had in recent years—never-ending crises instead of an actual budget.

The sequester will neither solve the deficit problem nor help government work smarter. Instead, it will indiscriminately damage good programs and bad. That may be fine if you think of government as the enemy. For the rest of us, it is just another exercise in stupidity.     

 

9Comments

  1. AMTbuff  ::  3:28 pm on February 28th, 2013:

    Is it too stupid relative to other politically viable alternatives? Or is it the least stupid of all politically achievable outcomes?

    I think we might agree it’s the latter. We might also agree that this is a sad commentary on our political system and its incentives for waste and short-term thinking. Structural changes are needed before our results will improve.

    There is no meeting of the minds on the fundamental issue of the proper scope of government and nothing to force the parties to compromise in advance of an actual crisis. Here’s the analogy I posted on Steve Landsburg’s blog:

    Spouse: Dear, you’ve really got to do something about your weight. Your clothes don’t fit and you’ll have a heart attack within a few more years if you don’t get more fit.

    You: You’ve got a fair point there. But let me point out that it would also be a good idea to buy new clothes in larger sizes.

    The outcome in that analogy will be a heart attack, followed by weight loss or death or another heart attack later. That’s the way our system is designed.

    The structural problems of democracy have been understood for hundreds if not thousands of years. America’s founders would have been surprised and proud that their creation lasted over two centuries without collapsing into bankruptcy and despotism as had every other democracy in history.

  2. Michael Bindner  ::  10:06 pm on February 28th, 2013:

    The Administration thought that the sequester would force a deal on tax increases – and to some extent it did, raking in $300 billion for those making $400,000 or more. I suspect that they made the calculation that just as Newt was blamed for the shutdown in prior years and Bush was blamed for his sequester in Gramm-Rudman-Hollings, the GOP would be blamed for their insistence on spending cuts and any economic pain. That is all well and good, unless you want to get back into the federal workforce and know that the first step of any sequester is a hiring freeze. This needs to be kicked down the road for at least a year, as the future of health care reform is not yet set in stone. Should Wall Street believe that it will lead to massive insurance company failure due to inadequate mandates and subsidies or overly generous pre-existing condition reforms, an argument over $400 billion in health care spending over 10 years is trivia. The debate will become about how to fund a subsidized public option while repealing consumer protections or whether to go to a single-payer system instead. If the Republicans are blamed for spending cuts that hurt the economy, it could well be a solid Democratic Congress making these decisions in 2015.

  3. AMTbuff  ::  10:10 pm on February 28th, 2013:

    “The debate will become about how to fund a subsidized public option while repealing consumer protections or whether to go to a single-payer system instead.”

    Michael, why didn’t you mention the option of restoring the pre-Obamacare status quo? Is there something I don’t see which makes that outcome politically impossible after it’s clear that Obamacare is destroying private insurance?

  4. Tax Roundup, 3/1/2013: Apocolypse, Day 1. « Roth & Company, P.C  ::  8:59 am on March 1st, 2013:

    […] Howard Gleckman, The Sequester is Not Too Big, It is Too Stupid […]

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