The Exchange

The Federal Budget Sequester Is Coming, and It Won’t Be Pretty

The Exchange

By Ron Haskins

"Stupid, ridiculous, insane, nuts, outrageous" — these are just a few of the labels that politicians, editorial page writers and budget analysts have applied to the budget sequester that will hit hundreds of federal programs on January 2, 2013. Although the sequester has been in place since last summer, a new wave of outrage was caused by last week's Office of Management and Budget report that provided greater detail about the programs that would be cut by the sequester. Personally, I agree with all of the above labels. And yet...

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What Is the Sequester?

But before we get to the "and yet...," let's review the bidding. For many years, federal policymakers have spent more money than they have coming in. Policymakers were able to "steer" this irresponsible course because the U.S. has the most powerful economy in history and a long record of repaying its debts. So private American investors, the Chinese, the Japanese, the Saudis, and almost everyone else with a little lose change believes that if they loan their money to Washington, it will be safe and they will even earn a little interest. Although most Americans don't realize it, they get their federal benefits in part from the Chinese. And, hey, if it works, why stop? In fact, letting other people pay our bills has worked so well that for the last four years that federal policymakers have spent well over $5 trillion more than they took in, bringing the nation's public debt to over $16 trillion.

Running deficits as we have been doing is what is really "stupid, ridiculous, insane," etc. In fact, the exploding federal deficit is one of the three or four greatest failures of government in U.S. history. The worst thing about our deficit is that we now charge ourselves 60 cents for every dollar we spend and pass the other 40 cents on to the next generation. Americans have never done anything like this before.

A Tricky Solution

In their attempts to deal with the deficit, Congress and the president have pulled out a huge bag of tricks. Everyone knows that the deficit must be solved by taxing ourselves more and by controlling entitlement spending. But this one true solution to the deficit is off the table because Republicans refuse to raise taxes and Democrats refuse to reform entitlements. Even so, both parties know something must be done about the deficit because it appears that voters are at long last beginning to notice that their government is out of control.

Now, if you can't adopt the one true solution, you resort to tricks. Enter the sequester. Last year, in a showdown over whether to raise the debt ceiling so we could borrow more money to pay our bills, Congress and the president took strong steps to make a down payment on the deficit. Actually, they took two steps: they cut spending by $1 trillion over 10 years and they appointed a supercommittee to recommend further deficit reduction of at least $1.2 trillion. But the supercommittee was no better than the Congress and the president at figuring out how to get to the one true solution, so they deadlocked. Anticipating this outcome, Congress included a provision in the debt-ceiling legislation that stipulated an automatic series of cuts over nine years that would total $1.2 trillion if the supercommittee failed. That's the sequester.

No Surprises

We've known since last November that the sequester devised by Congress would inflict pain all around. As almost all the critics have pointed out, across-the-board cuts slicing into defense and domestic programs like a machete is a lousy way to reduce the nation's deficit. Agreed.

Now for the "and yet..." First, everyone is moaning about the pain these cuts are going to inflict. But there is no way to cut spending at anything even approaching the magnitude that is needed without inflicting pain. There is pain enough for everyone no matter how we reduce the deficit. Yes, the pain would be reduced for individuals and groups of Americans if all programs, especially entitlements, were cut carefully rather than by the slice of the sequester, but there is still going to be pain. Second, the cutting could be reduced if taxes were raised, but Republicans are likely to agree to tax increases only if there are major reforms of entitlements — only, that is, if the one true solution is invoked. Third, between last year's $1 trillion in cuts and the sequester's $1.2 trillion in cuts, we soon will have reduced the deficit by $2.2 trillion. It's ugly, but its progress.

Haskins is a senior fellow in Economic Studies at the Brookings Institution where he co-directs the Budgeting for National Priorities Project.

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