The GOP Has a Strong Political Interest in Killing the Sequester

by Reihan Salam

According to Jed Graham of Investor’s Business Daily, Republicans have a compelling case to make about coming dangers to our already-weak economy that threaten exacerbate unemployment and underemployment:

While a delay in tax refunds also may be having a short-term impact, reports that Wal-Mart (WMT) sales in February got off to a horrid start confirm that underlying growth has downshifted since year-end.

Meanwhile, the January jobs report showed that the retail and hospitality sectors added 55,000 jobs, seasonally adjusted, even as overall hours worked declined. This appears to confirm anecdotal evidence of a shift to part-time work ahead of a midyear ObamaCare regulatory deadline facing employers.

The fines employers will face next year — up to $3,000 per full-time worker who receives ObamaCare subsidies due to a lack of affordable employer coverage — will be influenced by staffing levels at the end of June.

It has been decades since Republicans had a chance to show that higher taxes can hurt the economy, yet the GOP seems ready to throw away the opportunity.

As the impact of ObamaCare’s mandates begin to be felt, Republicans may have their last, best opportunity to make their case to the public that the law needs reforming.

The problem, in Jed’s view, is that sequestration changes the narrative. The president and his allies will (rightly) claim that sequestration is a blunt instrument that will do a fair bit of economic harm — yet in doing so they will drown out the (more important) news that the new taxes and regulations associated with the Affordable Care Act will have a significant impact on the labor market. 

That is, as the ACA’s “four cliffs” — (1) the 50th employee (firms with 49 employees that don’t offer medical insurance will be hit with a $40,000 penalty if they hire just one more worker); (2) the 200 percent threshold (one households cross 200 percent of the poverty line, deductibles might sharply increase); (3) the 400 percent threshold (the dropoff is even bigger once households cross 400 percent of the poverty line); and (4) the early retirement incentive (ACA creates an incentive for many older workers below age 65 to exit the workforce) — reshapes the American labor market, the dominant narrative will be that the $85 billion in sequestration cuts are responsible for sluggish growth.

Jed offers a smart way out, patterned after the debt limit strategy: Republicans should agree to put off sequestration if the Obama administration releases a plan to help Social Security become “sustainably solvent.” 

Many conservatives believe that sequestration is an opportunity to demonstrate that the GOP is serious about spending cuts, and that defense expenditures are no longer sacred to the right. While I understand why this is an attractive idea, I tend to think that (a) any reduction in defense expenditures should be well-aligned with our long-term strategic goals and (b) that current proposals to ease the burden of sequestration — i.e., giving the Obama administration more discretion to distribute cuts across programs, projects, and activities — surrender more authority to the executive branch than is appropriate, and in exchange for relatively little of value.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.