In 2011, President Obama proposed a spending cut sequester to Congress. Congress complied with his request. And the President signed the bill into law. So the sequester that confronts the nation on March 1, 2013, should no new legislation occur, is owned by President Obama in its entirety. Just how he can wander around the country at taxpayers’ expense, denouncing a law that he proposed and signed into law is a mystery, unless the President understandably despises himself.
Given the unwillingness of President Obama to contemplate any spending cuts at all, and his thirst for new spending in the wake of his slender 2012 election victory, the sequester is far and away the best budget deal that far-sighted Americans can possibly expect during Obama’s second term. It is food on the table, and the GOP would be crazy to turn it away just because it is buffalo wings, collard greens and hot water cornbread, instead of lobster, filet-steak and asparagus tips.
The sequester is a modest enough meal, to be sure. It imposes a $85 billion cut in federal spending for the shortened 2013 calendar year. This spending reduction amounts to approximately 0.3 per cent of total federal spending for that year, well within the error term of the budget.
For the following nine years, the sequester will impose a $120 billion per annum reduction in federal spending, or less than $1.2 trillion in total. In total, the sequester amounts to a mere 2.5 per cent reduction in projected spending over a ten year period.
However, if unaccompanied by any further tax increases, the sequester amounts to $2 of spending cuts for every dollar of the President’s tax increases enacted into law on January 3, 2013. That is not the 3:1 ratio recommended in December 2010 by the president’s Simpson-Bowles deficit commission. But it is the best now within reach given the shift to the left by the re-elected president.
Most likely, the sequester, together with the tax increases, will slow the rate of economic growth for a quarter or two, perhaps to 1 per cent. Thereafter, the growth rate will pick up as productive private investment replaces government growth-dragging outlays. With implicit reductions in the interest rate payable on a smaller debt, the growth in the debt to gross domestic product ratio will decline by some 4.6 percentage points per annum.
Such a reduction, of course, is manifestedly inadequate. The debt to GDP ratio will peak at 77 per cent in 2014, and, if economic growth picks up, will decline to 73 per cent by 2017. From 2018 to 2022, the ratio will rise again, for demographic reasdons, to 78 per cent. If interest rates increase significantly over that time-period, the prognosis becomes worse.
The buffet provided by the president may be meager, but Congress should wolf it down. There is no more such food in prospect. And the GOP should not allow the best to become the enemy of the good.
Hat Tip: John Makin, ‘Learning to Love the Sequester’, The Wall Street Journal, February 14, 2013