Monday, September 17, 2012

Budget Sequestration Explained, And Why It Matters To America

September 15, 2012
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).
    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.
The White House OMB Document further details how we got here…
    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.
    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.
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.
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. 
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.”
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?”
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.
    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.”
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 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!

White House Details Potential Effects If Automatic Budget Cuts Go Through
Published: September 14, 2012
WASHINGTON — Army operations and maintenance would lose nearly $7 billion next year, and the Navy more than $4 billion under a looming series of automatic cuts in federal spending. Educational achievement and special-education programs would be shaved by $2.3 billion. Medicare payments to hospitals would fall by $5.6 billion.

Related in Opinion
Editorial: Cutting Government, Blindfolded (September 15, 2012)

And, particularly relevant at a moment when world attention is focused on the continuing attacks on United States embassies and consulates abroad, diplomatic programs and embassy security would lose $1.2 billion.

These are among the findings in a new 394-page report by the White House that was delivered Friday to Congress, detailing line by line what will happen next year if Washington fails to act to head off about $100 billion in military and domestic spending cuts scheduled to begin Jan. 2. The Obama administration had been reluctant to specify the impact of sequestration, as the automatic, across-the-board spending reduction is called. But once forced to do so by Congress, the White House budget office did not scrimp on the details.

“As the administration has made clear, no amount of planning can mitigate the effect of these cuts,” the report states. “Sequestration is a blunt and indiscriminate instrument. It is not the responsible way for our nation to achieve deficit reduction.”

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.

Lawmakers still hope that Congress and the White House can come up with a way to avoid the cuts, but nothing will happen before the November elections, whose outcome will have some effect on what any future agreement would look like.

For now, the two parties remain at odds, with each seeking to blame the other for the automatic cuts about to come.

Under the terms of those cuts, most military programs face a 9.4 percent reduction, while most domestic programs would be sliced by 8.2 percent. Medicare would be trimmed by 2 percent, while other social programs — excluding Social Security — would be sliced by as much as 10 percent.

White House officials said cuts to Medicare would fall on health care providers, not beneficiaries. But the impact on health care professionals could affect the elderly if deep cuts prompt doctors and hospitals to shun Medicare patients. Total payments to hospitals through Medicare would be cut by more than $5.8 billion next year, while prescription drug benefits would be trimmed by $591 million.

The White House report details how $108 billion in cuts would be meted out next year, the start of what would be a decade’s worth of cuts on that scale.

Congressional Republicans were the first to demand a detailed accounting this summer, focusing on the planned Pentagon cuts. The White House resisted. Then Democrats joined in, pushing to see the impact on domestic programs as well and ultimately passing legislation almost unanimously demanding a written report.

A senior administration official, speaking on the condition of anonymity, acknowledged the White House reluctance on Friday. The reason, he said, was the fear that “lots of energy and time would go to reporting and planning as opposed to avoiding the sequester.”

As late as Friday, Congressional aides were skeptical that the White House would produce the details lawmakers had wanted. And the White House did not get to the level of precision sought by some lawmakers, down to the effect on individual weapons programs or military bases.

But the report does detail the potential toll on more than 1,200 agencies and programs, like the $4 million the Library of Congress stands to lose for its books for the blind and handicapped.

The first items on the ledger are cuts to the legislative branch. Inquiries and investigations, a mainstay of the Republican House, would lose $11 million. Salaries and expenses in the House of Representatives would drop by $101 million. However, under the terms of the budget law, salaries for lawmakers would be exempt.

“Hopefully this will move the Republicans toward compromise,” said another administration official, who briefed reporters under the condition, set by the White House, that he not be identified.

“But without compromise, the report gives us a window into what our future might be like.”

Big cuts would hit the military. Defense Department operations and maintenance would lose $3.9 billion next year alone. Air Force and Navy aircraft procurement would be sliced by more than $4.2 billion. And money to strengthen Afghanistan’s security force the year before the United States plans to withdraw its own forces would fall by $1.3 billion.

Pain would be spread widely. The National Institutes of Health would lose $2.5 billion. Rental assistance for the poor would fall by $2.3 billion; nutrition programs for women, infants and children would lose $543 million.

Domestic priorities more associated with Republicans would also take a hit. The Customs and Border Patrol budget would fall by $823 million, and the budget for the border fence would drop $33 million.

Under the terms of last year’s budget act, veterans programs were exempted from the cuts. Mr. Obama used the latitude granted by the law to also shield military personnel. But that would only deepen the remaining military cuts.

Chances that the report would move the parties to the negotiating table before the election seemed remote, judging from the reaction on Friday.

“It’s the American people who will pay the price for Republican intransigence,” said Representative Chris Van Hollen, Democrat of Maryland.

“It is time for the president and Senate Democrats to follow the example of the House and present a plan to remedy these unbalanced and dangerous defense cuts,” said Senator Jeff Sessions, Republican of Alabama.

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