Wednesday, February 27, 2013

Political Brinksmanship: Sequester Edition

Sequestration is coming. It arrives March 1st.

Heritage Action's Dan Holler reports that the sequester cuts amount to only a 2.4% cut, so instead of spending $9.863 billion per day, we'll only spend $9.622 billion per day. But even that is a little misleading because of baseline budgeting. As Paul Roderick Gregory at Forbes explains in an op-ed titled: The $995 billion Sequester Cut is Actually a $110 billion Spending Increase:
The sequester “cuts” are subtracted after increasing appropriations subject to the sequester at the rate of inflation and adding back in more than a trillion dollars (over ten years) of spending exempted from the sequester.
Each year federal spending is increased based on population growth and inflation. That increase becomes the new baseline budget. That annual bump is about 6% this year, so a 2.4% sequester half-way through the fiscal year means that this year's budget will be more than 4.5% larger than last year's.

But, according to the President, this trivial cut is the end of the world. The White House has launched the classic FUD (Fear, Uncertainty, and Doubt) campaign against the coming sequester. Politico reports that the administration is: "releasing state by state details of the pain and suffering the sequester will cause..." TrimTabs president and CEO Charles Biderman doesn't think that they can be serious:

Biderman goes on to make the point that the government does not want to cut anything.

Nonetheless, as Sen. Roy Blunt (R-MO) made clear earlier this month (video): "Spending cuts will occur on March 1st. Sequestration will happen."

It's a classic game of brinksmanship. The Democrat view of the economy is that economic success is driven by government spending so cutting government spending will harm the economy. Republicans see a world where smaller government gets out of the way of business unleashing economic growth.

This is only the opening act. The real fight will occur after the sequester goes into effect on March 1st and both sides try to get the press to report their economic outlook.

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