18.03.2013

The Permanent Fiscal Emergency

Sequestration is one of many stops along the road of what Matthew Yglesias has coined the permanent fiscal emergency in the United States. The component parts of these fiscal emergencies - fiscal cliff (aka the fiscal slope), debt ceiling, the continuing resolution, and sequestratio - are the parlance of those in Washington but are mostly lost on the average American, who perceives an unraveling fiscal disaster and a government structure that seems at worst unable and at best unwilling to find solutions to reverse the trend.

In the August 2011 Budget Control Act, as Republicans held the good faith credit of the United States hostage by threatening to default on its debt, the Congress and the president scrambled to find an agreement that would coax Republicans off the cliff and restore confidence in the U.S. credit rating by raising the debt ceiling (the cap on the amount of money the U.S. can legally borrow). They eventually agreed to a reduction in federal spending by $1.5 trillion over the next 10 years. Because of deep division between both sides over how to achieve this goal – the White House pushing for tax increases on the wealthiest Americans and closing tax loopholes for large corporations and the House arguing for spending reductions – a tough enforcement mechanism called sequestration was incorporated into the Budget Control Act to ensure some compromise would be reached to avert these draconian spending cuts. The idea was that the haphazard butchering of the budget would be so onerous that a compromise would be forged before the sequester started to sink its teeth into the federal budget.

With the Congress unable to forge such a compromise, the sequester cuts – 85 billion dollars (1.2 trillion over 10 years) split evenly between defense and non-defense spending (“mandatory” programs such as Medicaid, Social Security, welfare and food stamps are exempt) – went into effect on March 1, 2013. Making the situation more pressing, the government has only 7 months to implement the first round of cuts by September 2013, the end of the fiscal year in the United States.

Public Opinion
The public is somewhat divided over what the impact of the spending cuts that began on March 1st will be. According to Gallup most Americans do not know enough about the cuts to opine on whether they are good or bad, but among those who hold an opinion, more believed that sequestration would have a negative toll.

A CBS News poll showed a plurality of Americans (46%) said they believe the cuts are bad for the country, while 34% said they thought they were a good thing. Another 20% said they would have no impact or expressed no opinion.

Although most see the cuts as bad, the close split among those with opinions along with the undecided faction demonstrates that the public is divided on the issue and there is certainly room in the coming months for public opinion to shift. This is why we have seen such an aggressive communication campaign from both political parties to paint the other as unreasonable in an attempt to garner the political imperative to either keep the cuts or replace them in some other form.

Political Calculation of the Democrats
The White House has the benefit of having coming off a sound victory in the general election, and as George Bush reminded the public in 2000, “elections have consequences.” With a newfound confidence after his victory, Obama has steadfastly stood his ground on a balanced approach of cuts and new revenues in order to get the budgetary situation in order. The Administration is confident that although many Americans want a compromise, most are unwilling to accept the Republican budget proposal that would slash the legacy of the New Deal and Great Society by irreparably gutting programs such as Medicare, Medicaid, and Social Security.

Political Calculation of the Republicans
Realizing that their stances on immigration, gay rights, and now increasingly gun regulation are outside the mainstream of the American electorate, the GOP has decided to hold on firmly to the only mantra that they think can gain traction with voters: namely, shrinking the government by reducing taxes. Republicans are betting that the sequester  cuts will not have as severe an effect on the economy as the Democrats claim. This is a dangerous long-term position to take with the Congressional Budget Office estimating that the sequester will cost 750,000 jobs in 2013 and shave 0.6 percent off of economic growth. When these effects begin to be felt, Congressional Republicans will likely face a backlash from the public, as they will correctly be perceived as responsible for the indiscriminate nature of the cuts.

Broken Actors or Broken System?
The sequester will undoubtedly have negative effects on growth and unemployment in the long term. The GOP position on the sequester is made more problematic because as a study from EPI highlights, the sequester cuts actually have the counterproductive effect of leading to a higher debt ratio than would have existed before the cuts because the negative effects on growth will detract from the tax base more aggressively than the cuts will reduce the debt. This shows that Republicans are much more interested in fundamentally shrinking the size of the government as a matter of principle, rather than based on what is best for the long-term economic health and social stability of the country.

This entire political dynamic is perceived by the US electorate to be the result of the broken system; however, the true problem is not the system, rather the actors who have abused political instruments that have always been present such as campaign finance, the filibuster, and gerrymandering to push an inequitable agenda that obliterates much of the social progress of the 20th century. Historically, the US has successfully navigated politically perilous waters using the political system that is currently in place; It is now up to the politicians to ensure that the legacy of fairness and equality of the 20th century is not sacrificed under the guise of deficit reduction.

FES USA & CANADA

WASHINGTON, DC

+1-202-408-5444
fesdc[at]fesdc.org

OTTAWA, ON
+1-202-408-5444
canada[at]fesdc.org

Latest Publications

back to top