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More on the Supercommittee Sequester



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Over at Reason.com, Peter Suderman makes the case that the sequester may be the best way we have to cut spending:

The ideal outcome from the Super Committee would be a deal to reduce spending even more than the sequestration process calls for. But with predictable gridlock between panel members over taxes and entitlements already setting in, that doesn’t seem likely. Sequestration may not be perfect, but, even with its limitations, it’s probably the best plausible result. So go ahead, Super Committee. Pull that trigger.

But it remains to be seen if it will actually happen:

Even with the sequester, though, America may remain defenseless against endless spending increases. Republicans are already attempting to get the Super Committee to accept a troop drawdown—a now-classic budget gimmick that calls for the Congressional Budget Office to score overseas troop reductions that were already scheduled to occur—in place of actual defense cuts.

Nor is the history very reassuring. A similar attempt to reduce the deficit through sequestration in the 1980s failed to reach its budget targets. And as Stan Collender, author of The Guide to the Federal Budget, pointed out in August, budget deals don’t have a very strong track record. Indeed, he notes, they have “always been changed, waived, ignored or abandoned long before they were scheduled to expire.”

The interesting thing about the sequester, as Suderman explains, is that there’s an impression that “such reductions are somehow unthinkable. But these are hardly dramatic cuts. Some Democrats have cried foul about the potential Medicare cuts, but they’re capped at 2 percent, which would barely make a dent in the program’s rapidly growing spending.”

Republican, of course, are unhappy about the defense cuts. As Rochester University professor David Primo reminded me last week, Senator McCain has already promised that these cuts will never see the light of day:

“If there’s a failure on the part of the supercommittee, we will be among the first on the floor to nullify that provision. Congress is not bound by this. If something is passed, we can reverse it”

Here is a table of the annual cuts by spending category (discretionary, defense, non-defense, mandatory, and others) that would take place with the sequester, based on CBO projections.

Are these cuts unthinkable? politically maybe but they shouldn’t be considering that the sequester cuts are cuts from the baseline rather than real cuts. As you can see, defense spending takes the largest budgetary hit, at nearly 42 percent of total cuts, and will have reductions (relative to CBO’s baseline estimates) ranging from 4.5 percent (in 2013) to 6.2 percent (in 2021). But to be effective, these cuts will have to be sustained over nine consecutive years, with nine large cuts each subsequent year. Looking at the past cuts (these cuts are actually cuts where the government spent less on year 2 than it did year 1), we see that:

  • Defense spending was cut by 7.3 percent in nominal terms in 1965 (7.1 percent in real terms), but it was followed by a spending increase of 16 percent (12 percent real).
  • Between 1969 and 1977, defense was cut nine times in real terms (1969, 4.8 percent; 1970, 6.2 percent; 1971, 9.2 percent; 1972, 8.9 percent; 1973, 9.9 percent; 1974, 2.9 percent; 1975, 2.2 percent; 1976, 4.8 percent; 1977, 0.8 percent).
  • Between 1993 and 1996, some real defense cuts took place also (1993, 4.9 percent; 1994, 5.3 percent; 1995, 5.0 percent; 1996, 5.9 percent).

There have been other defense cuts, but they weren’t in consecutive years or weren’t large enough.

It will be harder when it comes to Medicare. The sequester cuts to Medicare average roughly 1.8 percent. Medicare spending has been cut only one time in history — in 1999, at a rate of 1.3 percent (2.6 percent real).

Does that mean it can’t happen? I’m not sure. For one thing, let’s not forget that both Medicare and defense will continue to grow (a lot) over the period. Stan Collender thinks real cuts are unlikely because Congress generally ends up ignoring the rules that budget deals impose on them. In other words: Let’s wait and see.



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