BURT FOLSOM JR.
The much-ballyhooed “sequester” is a cut of $85 billion in a nearly $4 trillion federal budget. Good, let’s do it. Sure, some of the programs to be cut have merit, but cuts must be made in federal spending if the U.S. is to remain a prosperous country. Sequestration is the only chance we have had, and probably ever will have, to cut any federal programs under President Obama.
Let’s put the problem another way. The U.S. currently spends $40,000 more than it takes in every second of every day of the year. The cuts, if enacted, will reduce that to $37,200 per second. Is the proper question, “Are the cuts too drastic?” Or is the better question, “What else can we cut, and when can we start?”
At the end of World War II, FDR wanted more federal spending, but he died in 1945. The Republicans prevailed and drastically cut the 1946 federal budget. What happened? Investment picked up, entrepreneurs expanded production, and unemployment fell to a very low 3.9 percent. Budget cuts and tax cuts are the health of the economy.
— Burton Folsom, Jr. is the author of New Deal or Raw Deal?(2008) and co-author with Anita Folsom of FDR Goes to War, which will be published in October by Simon & Schuster.
The CBO projects that tax revenue relative to GDP will increase by about 25 percent over the next two years. Top-line revenue is set to double over the next decade, and by the end of that period its size relative to GDP will be about two percentage points above what it has been over the past 40 years. Despite that, deficits are massive. The Democratic party and President Obama demand tax increases at every turn, and act as if the sequester will be an extinction-level event.
It might seem odd that the Democrats have taken this course, but it should not. A massive welfare state has been constructed that will, absent legal changes, cause us to evolve into a European-style social democracy. The only question is, how do we pay for it? Democrats are now convinced that they can squeeze blood from Republicans one “crisis” at a time and stay one step ahead of the bond raters. Who can say they are wrong?
The cost, of course, is that the net worth of our children is being squandered on the consumption of today’s leviathan while the capital formation that should feed growth moves to China. Republicans are right to fight this fight, and if they lose, they can be consoled by how wonderful American craft cheeses have become.
The sequester is national politics at a new low. They’ve become academic. The old joke is that the politics in academia are so fierce because the stakes are so low. The sequester cuts are $85 billion in a $3.6 trillion budget — that’s two cents on the budget dollar. Or $85 billion in a $16 trillion economy — half a penny on every dollar of GDP. How low do you want to go?
Yes, this is a nadir for national politics, federal budgeting, and federal governance. And, yes, Republicans had a clearly superior policy approach to avoiding the cuts. It involved replacing them with cuts that were spread out over a longer period and focused on the part of the budget that is the real problem: mandatory spending (also known as entitlements).
The Democrats, meanwhile, continued to focus on messaging at the expense of policy. They let every House initiative die in the Senate months ago. Even a mere three days before the sequester is scheduled to occur, the Senate continues to dither. Three months after his reelection and his subsequent victory in the fiscal-cliff deal, the president continues to campaign for poll-tested tax hikes instead of governing.