Virtually everyone agrees, if sequester should happen, it would have significant fallout. It can retard the economic recovery. It can create thousands of job losses. It can discourage our allies – not to mention the global financial community. So why will it likely happen? For several reasons, some which can be mitigated and possibly solved. But there is one, which is beyond the control of Congress and the president.
Among those where some compromise and negotiation is possible is for conservatives to back off their no-new-taxes commitment, and buy into President Barack Obama’s plan of balancing new revenues with some serious spending cuts. However, that is unlikely because of the Republicans’ aversion to any new taxes, with some still wedded to Grover Norquist’s signed no-tax pledge. At any rate, there is room for compromise here.
But the one obstacle that may prevent some sort of effective result — even with compromise — is the fact that there are few, if any, meaningful spending cuts that can be accomplished with the current budget as it is structured; and none realistically can be deficit-neutral.
20 ‘budget functions’
Consider these facts. The federal budget is broken down into 20 “budget functions.” Of these 20, four alone make up 67 percent of the total budget (national defense, and three entitlement programs of Social Security, Medicare, and Income Security). If you add the health category (more about that later), it is 77 percent. Now add on the non-negotiable expense of interest on the debt (9 percent) and you are up to 86 percent of the budget that has virtually little or no prospects of being cut. Tweaking what little is left is insufficient to make much of a spending dent.
In the case of the military budget, it is broken down into two parts: base, and the war. The war portion will wind down, but will not be cut now. The base budget is protected by the strongest lobbying team in the business: the military/industrial complex. Plus, conservatives are loath to cut military spending by much if at all.
So, now we deal with entitlements. Social Security is not only sacrosanct, while it costs over $800 billion to run, Social Security and payroll taxes bring in $841 billion per year, or about one-third of all government revenues. Additionally, if the military/industrial complex has the best lobbying organization, that of seniors and AARP is not far behind. While Medicare has long been a target of conservatives, the reality is that it cannot and will not be slashed in a frenzied period of a few weeks. It, as well as Social Security, does need adjusting, but that is a process that cannot be done quickly and almost certainly will not affect the coming budget.
‘Obamacare’ won’t be repealed
As to the “health category,” recent suggestions that we should repeal the Affordable Health Care Act, simply are not going to happen. Besides, doing that would have little immediate effect since parts of it do not even start till 2014.
So, now we are down to the bottom of the barrel, and facing a deficit of $1.1 trillion. And, we have little left to cut. Conservatives are eager to eliminate the entire Department of Education. That would save … 1 percent of the total budget. Well, what about cutting the size of government? The facts are … it has been cut, continuously. In fact, it has actually shrunk.
In 2010, there were about 2.7 million federal civilian employees; at the time President Ronald Reagan uttered his famous words about the size of government, there were over 3 million. Translating this into dollars, the best indicator is the cost of government is as a percent of GDP (this has nothing to do with cash flow, taxes, or deficits); and that number has remained very constant over decades – usually about 22-24 percent of GDP, close to the current level.
The Federal government has grown in only a few general areas, notably Veterans Affairs and Homeland Security. Are these really candidates for reduction?
Same elements, same players
In 2010, Obama formed the bipartisan Bowles-Simpson Commission to recommend steps that could be taken to reduce future budget deficits. The commission released its report in November 2010, and did recommend domestic and military spending cuts, reforming the tax system, and incrementally reducing benefits for Social Security and Medicare. The plan did not even receive the supermajority vote within the commission needed to be sent to Congress, and portions of the plan were rejected by both parties. Given that, all the same elements – and same players – are still in place to create gridlock in avoiding sequester. Indeed, another reason sequester likely may happen is that there is a bloc in Congress who are silently promoting it as a way of getting significant reductions in domestic programs.
The no-tax folks still are strongly committed. The lobbyists for the military/industrial complex are still fighting reductions there. And the Social Security and Medicare cuts are almost certainly not ripe for cutting because powerful groups fear and fight a reduction in benefits. Not much is left to cut. All of which goes to the question: “Can we avoid sequester?” Don’t count on it.
Myles Spicer of Minnetonka has spent his business career as a professional writer and owned several successful ad agencies over the past 45 years.
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