Smiling Through the Spendocalypse

Elspeth Reeve

Both House Speaker John Boehner and President Barack Obama agree that the sequester will be a disaster for the economy. But Republicans and Democrats aren't allowed to agree on anything, so with eight days before $1.2 trillion in automatic spending cuts kick a chorus of conservatives have emerged to ask, what's so bad about sequestration? 

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After Boehner wrote yesterday in The Wall Street Journal that the sequester "threatens U.S. national security, thousands of jobs and more" — echoing Obama's speech on Tuesday in which he said "these cuts are not smart, they are not fair, they will hurt our economy" — The Washington Examiner's Byron York noticed, this message is kind of "astonishingly bad" for the GOP if they also want to use the threat of spending cuts to negotiate a deficit reduction deal that's made up entirely of spending cuts. "The effect of Boehner’s argument is to make Obama seem reasonable in comparison. After all, the president certainly agrees with Boehner that the sequester cuts threaten national security and jobs," York writes. "The difference is that Obama wants to avoid them." 

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How to fix this conundrum? One way would be to change negotiating course and work on a budget deal that would include some of the revenue increases Democrats are seeking. But negotiating has been hard (that's why we're facing sequestration.) Much, much easier would be to just change up the message: the sequester actually won't be a disaster after all, but merely mildly unpleasant.

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In an editorial titled "So Be It," The National Review says: 

Lost in the president’s hyperventilation is the fact that under sequestration the federal government will spend just 1.5 percent less this year than it would like to, and still slightly more than it spent in 2012. Indeed, it will spend more than it has in any year in history save one (2011). And even discretionary spending, which takes the brunt of the cuts, will be set at — shock, horror — 2009 levels. Austerity, this is not.

The terrible consequences of the sequester you've been hearing about are just a "lurid fairy tale spun by President Barack Obama," National Review editor Rich Lowry writes in an op-ed for Politico Thursday. "It’s hard to see how a cut of a little more than $40 billion this year can possibly tank a $16 trillion economy. Or why keeping the deficit the same it is projected to be this year, at about $845 billion with the sequester cuts already accounted for, will be a shock too severe for the economy to take."

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Others on the right have chimed in. The proper response to Obama's press event flanked by first responders whose jobs he said were at risk,  The Washington Examiner's Conn Carroll argued, "would have been to mock Obama as a crazy 21st century Mayan profit of doom." writes. But instead, Boehner "played right into Obama’s hands." 

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What we're seeing is a near reversal of the GOP's rhetorical maneuverings ahead of the last D.C. standoff, the fiscal cliff talks in January, when the party's pundits saw the expiration of Bush's tax cuts and the spending sequester as a bad thing, but also an opportunity. Under the headline,  "Take the Hostage," Lowry asked, "why is the president outraged that someone would use the leverage of an impending event that everyone wants to avoid and that would damage the economy to his negotiating advantage?" After a deal to keep the Bush tax cuts for everyone making under $400,000 and to kick sequestration down the road, Lowry now is not so sure about that potential for damage.

But it's actually not that hard to see how the cuts could hurt the economy. The New York Times' Binyamin Appelbaum and Annie Lowrey report that while the sequester is not as damaging as the sequester + expiring Bush tax cuts combo the fiscal cliff threatened, it would still be bad for the economy. Specifically, it would "most likely would reduce growth by about one-half of a percentage point in 2013, according to a range of government and private forecasters." (The Congressional Budget Office estimates that the combined federal spending cuts and tax hikes this year will slow GDP growth by 1.5 points.) Leon Panetta told Congress Wednesday the Pentagon would furlough 800,000 civilian employees. George Mason University Economist Stephen Fuller estimates the sequester will cost 2.14 million jobs, which The Washington Post's Dylan Matthews put in the chart at right. Sorry, California. The Times reports that slower growth could mean high unemployment continues, but it's hard to predict what the sequester will do. Businesses might already be limiting investment because of Washington's frequent fiscal crises, and the defense industry might have already limited investment in anticipation of the sequester. And consumers might already be spending less because of the payroll tax hike -- something a Walmart executive alluded to in a recent email leaked to Bloomberg: "Where are all the customers? And where’s their money?" 

The funny thing about arguing the sequester won't be so bad is that it's more likely to appeal to Democrats. Senate Democrats will not agree to a deal that doesn't raise taxes, The Washington Post's Greg Sargent reports,  because the sequester sticks the Pentagon with deep cuts but leaves Medicare, Medicaid, food stamps and welfare alone. Sargent reports:

"There is no other formulation of the sequester that is more appealing to us than the current formulation," the [Democratic Senate] aide says, referring to formulations that only include cuts. "The hit in defense is not any worse for us than the hits we would take from our base from agreeing to non defense discretionary cuts. That’s why at the end of the day there has to be revenues."

Senate Democrats are considering making their next big battle for more tax increases the government shutdown, which would come later in March, a few weeks after the sequester has started doing its mildly unpleasant thing.