Today’s Economist: Bruce Bartlett: The Worst Possible Way to Cut Spending

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”

One big problem in the sequestration debate is that both sides have been talking past each other, with unstated assumptions underlying their statements and positions. There is also a great deal of posturing going on that disguises more agreement than the public knows.

Today’s Economist

Perspectives from expert contributors.

The guiding Republican premise is that there is a vast amount of fat and waste in the federal government. Just as when individuals are overweight, a diet will improve their health.

Contrary to popular belief, Democrats don’t disagree that many programs could be cut substantially without harming government’s core mission. The problem is twofold. First, they disagree with Republicans on which programs are wasteful. Second, Republicans tend to believe that any program they disagree with, philosophically, is, per se, money wasted.

Democrats, I think, are more inclined to think that money spent inefficiently, that doesn’t advance a program’s basic purpose, is the primary source of wasteful spending.

In general, Republicans think of national security as the federal government’s primary function and just about everything else as optional. Democrats don’t disagree that national security is a core function of government but also believe that it has a responsibility to help those who can’t help themselves and to improve the quality of life of all Americans.

Thus in broad terms, Republicans seek to protect national security spending while Democrats are more concerned about domestic spending. From this dichotomy was born the idea of the sequester, which both Republicans and Democrats agreed to in 2011 in the deal that increased the federal debt limit.

The assumption was that both sides would fight equally to protect their sides of the budget and from this struggle something better would emerge than a sequester, which everyone viewed as a meat-ax approach. It tends to be forgotten now, but simultaneous with the budget deal Congress established a Joint Select Committee on Deficit Reduction that was expected to propose a better mix of spending cuts and revenue increases to achieve the bipartisan deficit target.

In the end, the so-called super committee failed. Republicans simply refused to consider any revenue increases, and Democrats opposed a deficit package consisting entirely of spending cuts.

I’m not sure what everyone thought would happen if the super committee failed, but my impression is that everyone supporting the initial budget deal just assumed that sequestration would never actually occur. No Plan B was put in place.

So people looked to the presidential election to somehow clarify the situation. Although Republicans were initially chastened by their failure to win back the White House, they quickly convinced themselves that because they remained in control of the House of Representatives, this meant there was broad public support for their approach to the deficit of spending cuts only and no tax increases whatsoever.

Republicans reluctantly accepted tax increases in the fiscal cliff deal on Jan. 1, feeling they had no choice, because failure to act would have involved a very large automatic tax increase, as all the tax cuts enacted over the previous decade expired under existing law.

They treated this retreat as giving in to extortion and resolved to double down on their insistence that there would not be one penny of tax increase in any new budget deal to replace the sequestration. For his part, President Obama has repeatedly said that eliminating tax loopholes must be part of any new deal.

Economists generally agree that “tax expenditures” such as loopholes and subsidies are the same thing as direct spending. But Republicans insist there is a fundamental philosophical difference between keeping your own money, even through an unjustified and egregious tax loophole, and receiving a check from the government.

The stalemate has been something akin to the situation leading up to the First World War: all parties knew a disaster loomed but were unable to find a way to stop it.

Conservatives appear to believe that the sequester is a big nothing, that cutting 9 percent out of nonmilitary spending and 13 percent from military spending can be borne easily. There is more than enough fat and waste in the budget to permit such cuts, they believe, without jeopardizing anything vital.

The problem, as Democrats say, is that many of the cuts are to muscle and bone, not fat. The sequester mechanism requires that cuts come equally from every line item in the budget except for a few areas, such as veterans’ programs, that were exempted in the original legislation.

It’s as if an overweight person adopted a diet that cut the same percentage from fat, liver, kidneys and other vital organs equally. That’s obviously nuts, but essentially what the sequester does to the budget. The cuts are indiscriminate, leaving bloated programs still bloated, while those that were underfinanced to begin with may lose their ability to function at all.

One thing that has surprised everyone in the sequestration debate has been how blasé Republicans have been about cutting military spending. The House minority leader, Steny Hoyer of Maryland, has said that Democrats miscalculated, thinking Republicans would fight hard to protect the military and thus be forced to negotiate.

My theory is that Republicans have concluded that the military would suffer worse under any budget deal that replaces the sequester. They may also believe they can replace military cuts resulting from sequestration in future appropriations bills.

It’s too soon to say whether the pain of the sequester will be enough to force Congress to end it or replace it with something more rational. According to the Bipartisan Policy Center, a Washington think tank, past sequesters have seldom been allowed to run their course.

Insiders generally believe that the impending expiration of government funding for fiscal year 2013, on March 27, will provide the vehicle for compromise. But as yet, the outlines of such a compromise are opaque.

Article source: http://economix.blogs.nytimes.com/2013/03/05/the-worst-possible-way-to-cut-spending/?partner=rss&emc=rss