Sequester, Part II, Gives Obama Control of the Budget

Published Jul 16, 2013. By Eric Pianin and Josh Boak. In The Fiscal Times.

Congress appears to be sliding toward a second year of sequestration—meaning the slashed budgets of this past year will soon receive an equally unpopular sequel.

That might just mean more power for President Obama, as the executive branch must juggle budgetary choices that Congress refuses to make.

The same political gridlock that set off the decade­long sequestration earlier this year has only worsened in recent months. House Republicans and Senate Democrats have proven incapable of agreeing to the basic contours for a 2014 budget. Nor can they work together on immigration reform. And with the Farm Bill, the fate of the food stamp program remains up­ in ­the­ air.

What was once unthinkable—broad cuts in defense and domestic discretionary spending—has become standard operating procedure. The administration still bemoans the sequester cuts that were introduced in a failed attempt to force a compromise on deficit reduction in the 2011 Budget Control Act.

Sequestration has had serious impact on some government employees and recipients of federal aid, but it never kicked the legs out from under the recovery. In fact, the economy is expected to improve as the spending reductions mount. And if Congress cannot provide an alternative to the sequester, it may unwittingly give the White House more control than it already has over how federal dollars are spent.

President Obama has not engaged House Republicans on replacing the sequester, while the issue has been on the backburner until Congress must confront the need to increase the government’s borrowing authority this fall. By October, Congress must also finalize a budget for Obama, or continue to lean on continuing resolutions.

“I don’t see a viable majority in the two houses of Congress in favor of getting out of it in a way that the president would accept,” said William Galston, a budget expert with the Brookings Institution. “And as far as I can tell, there hasn’t been a lot of serious discussion for months.”

“I’d have to say at the moment the chances are in favor of a second round because it is the status quo and it’s been very difficult for Congress to change the status quo,” said Robert Bixby, executive director of the Concord Coalition, a budget watchdog group. “They would have to change the law, and agreement has been awfully hard to come by.”

Congressional leaders and the administration could still surprise the nation and scratch out a deal. But any compromise would likely have to preserve more than $1 trillion worth of deficit savings over 10 years. The government can still survive on ad hoc measures that raise the debt ceiling on a short­term basis, while enabling the White House to blunt the impact of sequestration.

For sure, neither side relishes having another crisis like the near default on the U.S. debt in the summer of 2011. But Obama has pretty much abandoned hopes for a “Grand Bargain” of spending cuts, tax increases and entitlement reforms to keep the government on a long­term path to deficit reduction.

At the same time, many on Capitol Hill have concluded that the nearly $90 billion worth of sequester cuts that began to take hold this year weren’t nearly as harmful to the economy or government programs as Obama and others claimed they would be.

Outside analysis by the Federal Reserve backs up this sentiment.

When the spending cuts and government employee furloughs began, other parts of the economy—such as a rebound in home prices—kept growth going. Fed officials noted last month that gross domestic product should increase by more than 2 percent this year, despite the 1.5 percent hit caused by sequestration.

And while congressional budget leaders and appropriators would much prefer to make decisions on future savings, there is a growing tendency to either kick the can down the road, or essentially leave it up to department and agency heads to figure out how to absorb the mandated cuts that will once again total about $90 billion for the fiscal year starting on Oct. 1.

Steve Bell, a former GOP Senate budget adviser and now a senior director at the Bipartisan Policy Center, contends that Congress has been gradually and inadvertently “handing control of the purse over to the executive branch” by allowing sequestration to continue. Relatively anonymous bureaucrats are now making budgetary choices that once belonged to committee chairmen.

“I wonder when people realize that a series of continuing resolutions, plus the sequester together, has taken most of the influence Congress would have over the agencies and has really damaged that relationship,” Bell told The Fiscal Times.

The arrangement might not increase the level of discretionary spending, but it creates a scenario where the White House should have more discretion over where the money goes.

Bell said that conservative House Republican Houses – especially the newest members who have blocked efforts to reach bipartisan agreements—are in effect handing over power to the executive branch to make many of those decisions.

“It’s just the opposite of what they think,” Bell said.

At the same time, Obama would be able to capitalize on both a shrinking deficit and continued economic growth. Fed officials expect the economy to strengthen in 2014 and 2015, estimating that GDP will increase by more than 3 percent next year despite the second round of sequestration coming.

Macroeconomic Advisers, a private forecaster, estimated that GDP would climb by 3 percent next year and 3.4 percent in 2015 as the economy accelerates "past the epicenter of fiscal restraint," according to a June 10 commentary.

Secondly, the size of the sequestration cuts as a share of the economy will slow over time because much of the harshest chopping has already occurred. While the absolute size of the discretionary spending will decline, the rate of this drop­off will slow after this year, according to May estimates by the Congressional Budget Office.

House Appropriations Committee Chairman Hal Rogers (R­KY) has called the sequester situation “idiotic” but said his hands are “tied” by the Budget Control Act, the House­passed budget which insists on the lower spending level.

Unable to pass a budget, the government has operated under a continuing resolution that sets discretionary spending at $1.043 trillion. In order to comply with the Budget Control Act that established the sequester, $76 billion would have to be cut from that sum for fiscal 2014.

That cut would need to be made 15 days after Congress adjourns at the end of the year. Implementing it without furloughs or layoffs could be very tough for agency heads, who have already struggled to find one­time savings this year, aides said.

The Senate­passed Democratic budget would offset the sequester with additional tax hikes on wealthier Americans, but that particular solution has guaranteed that House Republicans will not come to the negotiating table. This makes sequestration—the policy lawmakers saw as a cudgel to force compromise because of its crude approach to deficit reduction—all but inevitable for the next year.

While Senate Budget Committee Chairwoman Patty Murray (D­WA) has warned of painful reductions to expenditures for national security programs and parts of the social safety net such as Head Start, the predictions have yet to reverberate on a national level with the economy.

Other than congressional intervention to prevent the furloughs of air traffic controllers and federal meat inspectors, law makers essentially stepped back and allowed the sequester fully take hold. As a result, many on Capitol Hill concluded they could easily live with the sequester this year—and presumably the next one as well.

In a sign that the Obama administration is bracing for a second year of mandated cuts, Defense Secretary Chuck Hagel informed Congress last week that further reductions would cause a sharp decline in the effectiveness of jet fighter wings, group combat units and even Special Operations forces.

 

Hagel warned that the Pentagon must identify an additional $52 billion in budget reductions for the fiscal year that begins Oct.1. What matters is that Congress may have no choice but to give Hagel more flexibility in assessing which cuts to make.

“I strongly oppose cuts of that magnitude,” Mr. Hagel wrote. “The size, readiness and technological superiority of our military will be reduced, placing at much greater risk the country’s ability to meet our current national security commitments.”