Obama should cut the sequestration rhetoric
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Sequestration "will jeopardize our military readiness; it will eviscerate job-creating investments in education and energy and medical research," President Barack Obama said at a news conference last week. "FBI agents will be furloughed. Federal prosecutors will have to close cases and let criminals go. Thousands of teachers and educators will be laid off."
You wouldn't guess from his remarks that sequestration was Mr. Obama's idea. It was a poison pill he proposed to resolve an impasse with Republicans on raising the ceiling on the national debt. He wanted to raise taxes to reduce the deficit. They wanted to trim spending. Sequestration kicked the can down the road. If no deal were made before March 1, 2013, then spending cuts of up to $1.2 trillion would be made over nine years.
• The sequester would "slash about $85 billion" from spending in the 2013 fiscal year, Mr. Obama said. Without the sequester, the government will spend $3.553 trillion in the fiscal year, the Congressional Budget Office estimates. So if what the president said were true, the sequester would trim spending by 2.4 percent.
It isn't. Because federal agencies have unused funds from years past, the reduction would be only about half that. And because this year's budget is $15 billion more than last year's, the actual reduction from what was spent would be less than eight-tenths of 1 percent.
Even if the sequester goes fully into effect, spending will be higher in 2021 than it is now, CBO projects. How can this be?
When you or I say we're going to cut spending, we mean we'll spend less in the future than we're spending now. But when Washington politicians speak of spending cuts, they intend to spend more -- just not as much more as they planned at first.
• The sequester will cost 700,000 jobs, the president said. If this were true, it would be fewer than the 710,000 jobs the National Federation of Independent Business predicts will be lost as a result of the tax increase on upper income Americans Mr. Obama obtained in the "fiscal cliff" deal in December and fewer than the 800,000 jobs the Congressional Budget Office predicted would be lost as a result of Obamacare.
It isn't. The president assumes, first, that sequestration would cut spending twice as much as it actually would. And he assumes each dollar the government spends grows the economy by another dollar.
That outdated multiplier of 1.0 grossly exaggerated the number of jobs that would be created by the 2009 stimulus bill, noted Veronique de Rugy, an economist at George Mason University.
"Harvard economists Robert Barro and Charles Redlick estimate the multiplier for stimulus spending is between 0.4 and 0.7," she said. "In another study, the Stanford economists John Taylor and John Cogan concluded that the stimulus package couldn't have had a multiplier much greater than zero."
The president is trying to scare people so they'll pressure Republicans to agree to additional tax hikes. If the GOP hasn't caved by Friday, "expect him to be invoking plagues of frogs and flaming hail," predicts Nick Gillespie of Reason magazine.
Despite polls that indicate Americans will blame them for any harm done by the sequester, Republicans appear to be holding firm -- perhaps because other polls indicate a majority believe the deficit should be lowered mostly by reducing spending.
"The worst-case scenario for us is the sequester hits and nothing bad really happens," health care lobbyist Emily Holubowich told the Washington Post. Then Mr. Obama would look, at best, like Chicken Little.
Administration officials will try to make cuts seem as painful as possible. But because the sequester doesn't apply to Social Security and Medicare benefits, and would trim "discretionary" domestic spending by much less than it has increased during the Obama administration, only "nonessential" federal employees may really notice.
If so, "congressional Republicans will have won a major victory in their campaign to shrink the size of government," concluded Washington Post reporters Lori Montgomery and Paul Kane.
First Published February 26, 2013 3:32 pm