Sequester, Revenues, and Timing

February 24th, 2013 at 10:00 pm

First, my fans tell me I’ve got a face for radio, so I’m headed for the the Diane Rehm show tomorrow AM to talk what else…sequestration.  With that in mind, I’ve been listening to some of the noise over the weekend and…OMG, what a mess.

The blame game continues, as both sides try to position themselves to avoid blame if it turns out as bad as some reports suggest.  There should be no question in anyone’s mind that this was a bipartisan agreement—both R’s and D’s signed on to the deal with lead R’s enthusiastically endorsing it—and squabbles about who thought of it first strike me as about as relevant as whose idea it was to form a mob and burn the village.  The mob has demonstrably signed on, and at this point, the problem is the burning village.

The White House just released state reports providing their guesstimates of the impact.  And while the truth is no one knows how this is going to play out, I strongly suspect it will be rough at both macro and micro levels.

Re macro, estimates are that it shaves 0.5% off of GDP growth and loses hundreds of thousands of jobs—that’s off of an economic baseline that’s already too weak.  My guess is that if the sequestration hits and sticks, the unemployment rate will stay about where it is—stuck around 8%.

Re micro, the layoffs and furloughs I’m reading about sound real to me, and I suspect their impact will be felt by many people if this drags on for more than a few weeks.  Disappearing Head Start slots and WIC cutbacks are exactly what low-income households don’t need to be struggling with right now, and for anyone who travels a lot, like I do, the TSA and FAA furloughs are…um…worrisome.   Defense contractors, military civilians, the FDA (food inspectors), health researchers…all face furloughs and/or spending cuts.

Meanwhile, the failure of Congress to compromise over a plan to offset the automatic cuts was due to the refusal of Republicans to accept tax revenues as part of the deal.  Their argument amounts to “been-there-done-that” since they already allowed revenues to increase in the fiscal cliff deal.

There are, however, numerous strange dimensions to this gridlock inducer.  First, note this chart from my colleague CC Huang.  It shows all the revenue increases offered during the cliff negotiations, including the $600 billion increase finally enacted when they defused the last fiscal time bomb.  No less than Speaker Boehner himself was offering significantly higher revenue increases than were ultimately enacted.

Source: CC Huang, CBPP

Second, spending cuts legislated so far, having nothing to do with sequester, amount to about $1.5 trillion, way more than the tax increases.  So if it’s OK for R’s to say been-there-done-that on taxes why can’t D’s say the same on spending?

Their response—the R’s—tends to be that because the tax increases were implemented in January and the spending cuts way back in 2011, it’s too soon for more revenues.  So there’s some undisclosed timing restrictions driving the R’s position.  Which begs the question: at what point does clock run out on their “no-new-taxes” position?   Any chance it could be before  March 1?

If you’re headed to the airport next week, bring a good book.  A good, long book.


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5 comments in reply to "Sequester, Revenues, and Timing"

  1. davesnyd says:

    Um… the village doesn’t start burning for a week. The mob is traveling towards it and one side says “hey! let’s not torch this thing!” and the other side says “it will be bad to do so– but it was your idea, so let’s go do it!”.

    That’s not exactly the same as both sides are burning the village…

    Having said that, the frustrating thing to those of us who have supported and voted for the President is that he owns this at some level– the “I can’t control the Republicans” line doesn’t work– he has to figure out how to work around them or force their hands. Or else we’re more or less doomed.

  2. foosion says:

    The best solution would be to kick the can down the road. Keep delaying the sequester until the economy has improved enough.

    The public believes there have been massive spending increases under Obama. It would be nice if someone with a large megaphone were to address this. It would be even nicer if that someone where to explain the virtues of counter-cyclical policy. Maybe a special edition for those that care about deficits that explains healthcare is the only budget issue that matters and compares us to the rest of the world.

    I can dream, can’t I?

  3. JohnR says:

    “’s too soon for more revenues..”

    It’s always too soon!

    Apropos of nothing in particular, I just had a visual flash while reading about the ongoing (! still?!) argument about austerity vs stimulus.
    Scene: Jurassic Park; Muldoon, Sattler and an injured Malcolm in the jeep when the Tyrannosaur emerges from the trees. Sattler and Malcolm scream for Muldoon to hit the gas. Muldoon vacillates – he feels that if he hits the brakes instead, the Tyrannosaur will panic, try to stop suddenly and fall down, thus injuring itself severely. As the T. rex approaches, though, he gives in and taps the gas pedal. The jeep gives a lurch and speeds up to 10 mph. Alas, the rex is almost on them. Muldoon, crying “See, the stimulus failed!”, then hits the brakes. The Tyrannosaur grabs and messily devours Malcolm, but falls behind the slowly-moving jeep in the process. Muldoon, gaining confidence in his policy, keeps slamming on the brakes while the T. rex pauses, burps, picks its teeth for a bit, then lumbers into motion again, and strolls up behind the jeep to grab and messily devour Sattler. Now reasonably content, the rex gets distracted by a passing hadrosaur (uncredited cameo by Nicholas Cage) and allows the jeep to grind slowly away in first gear, while Muldoon mops his brow and then sneeringly flips the bird at a disbelieving group of raptors hanging out on the next street corner, shouting “You can’t catch me – I’m practicing Austerity!”.

    • Jared Bernstein says:

      That pretty much sums it up–love the ‘see, stimulus failed!’ reference–story of my life.