Budget Sequestration Explained, And Why It Matters To America
Congressional ‘policy wonks’ and college economics professors are likely the only folks who will actually read, dissect and absorb all the arcane facts, statistics and projections contained in the 394-page report submitted by the White House to Congress late Friday. The OMB Report Pursuant To The Sequestration Transparency Act Of 2012 (or Public Law 112-155) was enacted by Congress to require the president to detail the actual cuts which will occur resulting from last year’s failed negotiations by the so-called, bipartisan ‘Super Committee’.
The Committee, was created out of the debt ceiling increase/budget crisis last year, which resulted in a near government shutdown and America’s credit rating being downgraded by independent credit rating agencies. In fact, the unprecedented, ad hoc ‘Super Committee’ was crafted by Congress, only after President Obama and Speaker of the House, John Boehner failed to agree on what has been characterized as ‘The Grand Bargain’.
When those negotiations broke down – largely due to Republican Tea Party extremists’ intransigence – Congress agreed on a budget reduction trigger mechanism (sequestration), which would automatically kick in on January 2, 2013 should the ‘Super Committee’ fail. Not surprisingly, the committee deadlocked along party lines. As reported Friday by the The New York Times:
The Budget Control Act of July 2011 established automatic cuts as the bludgeon that was supposed to force a special bipartisan committee to reach an agreement on deficit reduction of at least $1 trillion over the next decade. The committee failed, with Republicans refusing to meet Democrats’ demands to raise taxes in exchange for cuts to domestic programs and entitlements like Social Security and Medicare.Republican and Democratic lawmakers had foolishly concluded that the “Super Committee,” composed of 3 House Democrats, 3 House Republicans, 3 Senate Democrats and 3 Senate Republicans, would actually work and be able to produce a solution to the legislative stalemate. It met for several weeks in late 2011 in an effort to come up with a budget capable of bringing down the then $14 Trillion National Debt and, one that could actually be ratified by both houses of congress and be acceptable to the Obama Administration.
The Democrats staked out their position, which was essentially, opposition to any major cuts in domestic programs and spending without revenue enhancements. The Republicans drew their “line in the sand” over any increase in taxes or revenue, standing by the Grover Norquist Taxpayer Protection Pledge that nearly all Republican legislators have signed. Here is an excerpt from the OMB Report:
The Budget Transparency Act of 2012 (STA) (P.L. 112-155) requires the President to submit to Congress a report on the potential sequestration triggered by the failure of the Joint Select Committee on Deficit Reduction to propose, and Congress to enact, a plan to reduce the deficit by $1.2 trillion, as required by the Budget Control Act of 2011 (BCA).The White House OMB Document further details how we got here…
In response, the Office of Management and Budget (OMB) is issuing this report based on assumptions required by the STA. The report provides Congress with a breakdown of exempt and non-exempt budget accounts, an estimate of the funding reductions that would be required across non-exempt accounts, an explanation of the calculations in the report, and additional information on the potential implementation of the sequestration.
In August 2011, bipartisan majorities in both the House and Senate voted for the threat of sequestration as a mechanism to force Congress to act on further deficit reduction. The specter of harmful across-the-board cuts to defense and nondefense programs was intended to drive both sides to compromise.
The sequestration itself was never intended to be implemented. The Administration strongly believes that sequestration is bad policy, and that Congress can and should take action to avoid it by passing a comprehensive and balanced deficit reduction package. Instead of working to enact a balanced deficit reduction package to avoid the threat of sequestration, some Members of Congress are focusing on unbalanced solutions that rely solely on spending cuts or try to alter only part of the sequestration.This sets up a 2012 Presidential Election ‘Clash of Principles’ between President Obama and Republican challenger, Mitt Romney. Under Obama’s plan, deficit reduction must occur through a ‘balanced approach’ which cuts spending while raising government revenue, largely through closing many corporate tax loopholes and rolling back the “Bush Tax Cuts” on income over $250,000 per year, returning the taxes for that income group to the Clinton era figure of a 39.6% Top Tax Rate, while counting investment income as ‘earned income’ rather than at the now, much lower 15% Capital Gains Tax Rate.
These proposals do not represent realistic, fair, or responsible ways to avoid sequestration. Unlike the President’s proposals, they are sharply contrary to the conclusions of numerous independent and bipartisan groups that recommend a comprehensive, balanced deficit reduction package comprised of both spending cuts and revenue increases.
For Romney, his as yet,undefined, unscored (by the independent Congressional Budget Office) Romney/Ryan Budget would ‘voucherize’ Medicare, actually lower the corporate tax, further cut taxes on high-income earners (or “the Job Creators,” as Republicans incessantly call them), eliminate the Inheritance Tax (called “the death tax” by Republicans), eliminate the Capital Gains Tax on investment income, and increase military spending to record levels.
All the while, Republican slashing of nearly every aspect of domestic spending, shredding the ‘social safety net’ programs of the New Deal and socio-economic legislation of the last 80 years. Several government programs and agencies are firmly in the Tea Party-driven, Republican Party’s sights…Medicare, Medicaid, The Department of Education and the EPA only a few among them.
Romney has been playing his cards very close to the vest, failing to disclose details of his economic plan or exactly what he would do as president to turn around the slow economy, spur GDP growth or to create the 12 million new jobs he has promised. Meanwhile his ‘wonkish’ young running-mate, Paul Ryan, has likewise refused to disclose meaningful details on their budget proposals, telling ABC interviewer George Stephanopoulos last week:
“So Mitt Romney and I, based on our experience, think the best way to do this is to show the framework, show the outlines of these plans, and then to work with Congress to do this. That’s how you get things done,” Ryan said. “We want to have this debate in the public. We want to have this debate with Congress.My Grandpa used to say, “That’s like buying a ‘pig in a poke’.” If you’re not familiar with that term, Google it and you’ll see what I mean. Romney and Ryan have no intention of disclosing what they plan to do to the American economy or how it will really affect the poor and middle-class until after the election…so what the hell does he mean, “we want to have this debate in the public?”
And we want to do this with the consent of the elected representatives of the people and figure out what loopholes should stay or go and who should or should not get them… But that is a debate we shouldn’t cut in the back room, shouldn’t hatch a secret plan like ObamaCare. We should do it out in the public view where the public can participate.”
Isn’t that what presidential campaigns and elections are all about Mr. Ryan? However, back to the current budget sequestration, which Republicans agreed to…but now want to renege on, to prevent cuts to the D.O.D. (but not to prevent cuts in domestic spending)…as the OMB Report cites:
“… no amount of planning can mitigate the significant impact of the sequestration. The destructive across-the-board cuts required by the sequestration are not a substitute for a responsible deficit reduction plan.Essentially, the Democratic Party approach is to stimulate the economy through government-private sector cooperation, like through The American Jobs Act (which Republicans have repeatedly blocked); adding jobs through infrastructure investment, restoring jobs lost in the public sector (first responders and teachers) and investing in science and technology.
The President has already presented two proposals for balanced and comprehensive deficit reduction, but under our Constitution, he cannot do the job alone. Congress also needs to act. The Administration remains ready to work with Congress to enact a balanced plan that achieves at least the level of deficit reduction agreed to in the BCA, and cancels the sequestration.”
The Romney/Ryan, Republican Party approach entails rolling back decades of financial, consumer and environmental regulation…while “unleashing” the “job creators” and private sector through more tax relief in furtherance of widely discredited “Trickle-Down Economics”. That theory that has been the centerpiece of Republican politics since the presidency of Ronald Reagan and otherwise described as “supply-side economics” or, as former President George H.W. Bush once derisively called it…“voodoo economics”, when he was competing against Ronald Reagan for the Republican presidential nomination in 1980.
Congress is now back in session and discussions are beginning in earnest in an attempt to reach accommodation between Congress and the White House and forestall sequestration kicking in on January 2nd. Don’t hold your breath, as Republicans seem publicly unwilling to compromise on any tax or revenue enhancements. A large contingent of Democrats are convinced, however, that they will have the upper hand if they allow the situation to go “off the fiscal cliff” (video) until after the election.
President Obama could then propose an extension of the Bush Tax Cuts…but only for those earning less than $250,000, effectively undercutting the Norquist Tax Pledge strangle-hold on Republican legislators, a number of whom are chafing under the pledge, realizing the critical need for added revenue and even compromise. Machiavelli himself, couldn’t have drawn up the drama and intrigue any better.
Elections do matter and our decisions do have economic and political consequences. This year and in this election? More important than any since the election of F.D.R. in 1932 and the New Deal. All the more reason for all eligible Americans to wake up and pay attention and then vote November 6th!