With two weeks until deadline, $85B sequester is looking inevitable
By Ian Swanson and Alexander Bolton
02/15/13 05:00 AM ET
The question in Washington is no longer whether the automatic spending cuts known as the sequester will be implemented: It's when and even if the spending reductions will ever be shut off.
The $85 billion in cuts looming on March 1 would run through the end of the fiscal year on Sept. 30, leaving more than $900 billion in cuts for Congress and the White House to wrangle with over the next eight years.
Pressure may intensify to pass sequester legislation in March as federal workers are furloughed and Pentagon and other government programs are cut.
But the cuts seem also certain to begin rolling given the vast distance between Democrats and Republicans over how to avert them.
“We’re pretty far away because we have revenue in ours,” said Sen. Ben Cardin (D-Md.), commenting on the daylight between Democratic and GOP leaders.
Cardin was commenting on a proposal unveiled Thursday by Senate Democrats that would thwart the first $85 billion in spending cuts set to hit government on March 1.
The bill has little chance of passing even the Democratic-controlled Senate, as it would replace the sequester with $110 billion in deficit reduction that includes $55 billion in new tax hikes that are anathema to Republicans. GOP leaders are expected to block the measure.
Republicans have said they will agree to no deal that includes new taxes, and they have shown no sign of moving from their position.
Sen. Bob Corker (R-Tenn.) said he would not support a bill to halt $85 billion in cuts scheduled for 2013 by paying for it with offsets spread over the next decade.
“It’s my guess that sequester is going to kick in on March 1 because, again, unless you have real reductions in spending, this bill just kicks the can down the road,” he said in reference to the Democratic proposal.
The most dramatic signal came from Senate GOP Leader Mitch McConnell (Ky.), who twice in the last two years has worked with Vice President Biden to reach last-second fiscal deals after President Obama and Speaker John Boehner (R-Ohio) failed.
Those agreements have allowed people inside and outside the Beltway to grow accustomed to thinking Washington’s leaders will bicker until the last minute before reaching a deal. Not this time, McConnell said this week.
“Read my lips: I am not interested in an eleventh-hour negotiation,” McConnell told reporters Tuesday. He said it was pretty clear to him “that the sequester is going to go into effect.”
Obama urged Congress to deal with the sequester in his State of the Union address, but Republicans were unmoved, saying he has not put forward a credible plan that will attract bipartisan support.
Both sides have been working to find an advantage in a public relations fight over who is to blame that will only intensify come March 1, two weeks from today.
Anticipating the battle, the Senate Democratic bill features a proposal to impose a minimum 30 percent tax on millionaires known as the “Buffett” rule. It is named after billionaire investor Warren Buffett, who has said he pays a lower tax rate than his secretary.
Republicans have repeatedly rejected the Buffett rule, but its inclusion would allow Senate Democrats and the White House to argue Republicans were holding up a sequester-fix to protect tax rates for the wealthy.
McConnell called the bill a “political stunt.”
“Remember, this is not a solution — even they know it can’t pass, that’s the idea — it’s a political stunt designed to mask the fact that they’ve offered no solutions, and don’t plan to offer any,” McConnell said Thursday.
The GOP, for its part, has done everything it can to remind voters — and reporters — that it was the White House that came up with the idea of the sequester in the 2011 talks to raise the debt ceiling.
The $85 billion in cuts would not all be implemented at once. They would be set out between March 1 and Sept. 30, when the fiscal year concludes.
That could give lawmakers time to turn a portion of them off before the end of September should political pressure for action build.
Senate Budget Committee Chairwoman Patty Murray (D-Wash.) predicted business groups would press Republicans to negotiate on taxes to halt the sequester.
“We are days away from sequestration going into effect. We’re going to be hearing more and more from businesses who are going to be impacted, from people who are going to be furloughed, who won’t be able to pay their mortgage, impacting the housing market again. We’re going to be hearing from our defense department that cannot manage this kind of a cut,” Murray said.
Financial markets dropped as Washington flirted with going over the nation’s debt limit and allowing the “fiscal cliff” of tax hikes to be implemented. But markets have paid less attention to the first year of the sequester.
“I can’t honestly say this has been at the front of people’s minds,” said Daniel Alpert, managing director of Westwood Capitol.
One reason is that while $85 billion is hardly a drop in the bucket, it’s a smaller sum in the context of the broad economy, or even the annual budget deficit.
Alpert said Washington’s deal on the fiscal cliff, and a separate agreement to raise the debt ceiling, took away the possibility of “mass panic on the streets.”
Still, he said analysts are sure to revise their economic forecasts down because of the cuts, and a drop in financial markets remains possible, particularly after initial figures from the Commerce Department showed a fourth-quarter of 2012 contraction blamed largely on defense industry cuts and a drop in federal spending.
The non-partisan Congressional Budget Office has projected economic growth of only 1.4 percent this year if the $85 billion in cuts are implemented. It also says the cuts would reduce hiring this year by 750,000.
This year’s planned cuts of $85 billion are just a slice of the $1.2 trillion in deficit cuts, which includes reduced interest payments, that are to be made from the sequester.
Alpert argues that if the economy dips in the second quarter, pressure from businesses and Wall Street on Washington will grow, for fear that the larger cuts will stall the recovery.