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Sword of Damocles likely to drop

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NEW YORK — The once-delayed, long-dreaded $85 billion sequester is about to become reality.

How do I know? Because President Barack Obama is taking his case, and scare tactics, to the people. Unless Congress acts to avert this year’s across-the-board cuts largely to discretionary spending, the result will be meat shortages, outbreaks of foodborne illnesses, crazy people roaming the streets, a reduced number of first-responders and border-patrol agents, longer lines to pass through airport security, and even meteorite strikes. (OK, I made up that last one.)

The sequester was designed to be a Sword of Damocles hanging over Congress’s head. The 2011 negotiations to raise the debt ceiling led to the creation of the so-called super-committee charged with finding additional savings in the budget on top of those agreed to by Congress. The automatic $1.2 trillion of cuts during the next nine years ($984 billion after interest savings) are the reward for failure, as dictated by the Budget Control Act.

The problem isn’t the size of the cuts: $85 billion in a $3.6 trillion budget isn’t going to sink the $16 trillion U.S. economy. The stock market has yet to experience a sequester moment. And even with the automatic cuts, total federal outlays will increase each and every year for the next decade, according to the latest Congressional Budget Office estimates.

Nor is there much disagreement over the federal government’s duplicative, overlapping programs in need of a sharp budget knife. Heck, presidents have been trying to root out waste, fraud and abuse in the federal government at least since Teddy Roosevelt’s "Keep Commission" in 1905 — without much success.

Rather, the problem is the blunt-instrument design of the 2013 sequester, intended to be so awful Congress would never, ever let it happen.

"The grave error in the sequester is that it was done by program, project and activity: Each one of those has to be cut by the same amount," said Steve Bell, senior director of economic policy at the Bipartisan Policy Center in Washington and a former chief of staff to the Senate Budget Committee. "It’s the mechanics that make it so horrendous. It cuts the meat and the fat indiscriminately."

The second problem is the failure to address the main driver of the deficit, which is mandatory spending on Medicare, Medicaid and Social Security. Discretionary spending, which is subject to annual congressional appropriations, accounts for only 36 per cent of the federal budget today. Forty years ago, defence spending alone consumed half the budget.

The 2011 budget law imposed caps on discretionary spending that would save about $900 billion over 10 years. Sequestration would lop an additional five per cent off nondefence programs and eight per cent off defence this year, according to the White House Office of Management and Budget. Because the cuts are crammed into the seven remaining months of fiscal 2013, the effective reductions would be nine per cent and 13 per cent, respectively.

Just to recap: Congress has adopted a take-no-prisoners strategy that does nothing to alleviate the fiscal crisis confronting the nation in coming decades. Terrific.

Last week, Senate Democrats introduced an alternative to the sequester: a proposal to save $110 billion consisting of a minimum tax on millionaires and selective spending cuts, including the elimination of farm subsidies. Republicans, faced with a choice between the 100-percent-spending-cuts sequester and a half-and-half measure, will take the first option. Obama seized the moment to bash Republicans for their intransigence and blame any prospective fallout on them.

Of course, back in 2011 when the super-committee came up empty-handed, the president threatened to veto any attempt to get around the sequester. But who’s keeping score?

He is. So are both parties of Congress. Last week, as background for this column, I read Bob Woodward’s The Price of Politics. The book is a blow-by-blow account of the effort by Obama and leaders of Congress to reach a "grand bargain" in July 2011 that would raise the debt ceiling, reduce the deficit, reform the tax code, and restructure entitlement programs. In case you missed the final chapter, they failed.

What’s striking, and depressing, about Woodward’s recap of events is the leaders’ singular focus on their own self-interest above that of the nation. It’s all about who gets what, who wins, who loses and who gets blamed.

Under the circumstances, maybe the sequester isn’t such a bad idea. With a little finagling, it could turn into something positive. Congress appropriates the money to fund government operations, but nothing prevents lawmakers from giving the various departments the flexibility to design the cuts themselves. Households and businesses do it all the time, making tough choices about what’s essential and what needs to go.

Shouldn’t the U.S government, with its vast resources of policy experts, be able to do the same? The danger, as Woodward makes clear, is that those who ostensibly work in the public interest put their own interests first. After all, what bureaucrat is going to willingly write himself out of a job?



Caroline Baum, author of Just What I Said, is a Bloomberg View columnist.


—Bloomberg News

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