The Sequester

As we count down to March 1, we are hearing more and more about the dreaded sequester. The left is confused about its history.

How did this become Obama’s fault? It started with Mitt Romney, a once-influential Republican Party politician and its 2012 nominee for president. In the third debate with President Obama, Romney fretted that “a trillion dollars in cuts through sequestration and budget cuts to the military” would weaken America’s defenses. The president literally dismissed this with a wave of his hand. “The sequester is not something that I proposed,” he said. “It’s something that Congress has proposed. It will not happen.”

How did this get to be the story ?

The accidental Bible of Sequestration is The Price of Politics, Bob Woodward’s history of the debt-limit wars, and one of the least flattering portrayals of the president this side of Breitbart.com. In it, Woodward recounts a July 27, 2011, afternoon meeting between Senate Majority Leader Harry Reid and White House negotiators. Reid wanted a “trigger” as part of a debt deal, some way to force more cuts in the future without defaulting on the debt that summer. Chief of Staff Jack Lew and adviser Rob Nabors proposed sequestration, as a threat that could be averted if/when Congress passed a better deal.

OK. The White House staff suggested it. Why ? Because they assumed that Republicans would cave in rather than accept cuts in the defense budget.

Republicans have “twice passed legislation” to replace the sequestration cuts. Who told you that? It’s a common Republican talking point, but it’s misleading in two ways. The House passed two bills related to sequestration replacement, but the first one, in May 2012, didn’t offer specific cuts. It moved the total amount of defense cuts over into the non-defense budget, like a croupier moving chips into the winner’s pile. The actual replacement cuts were only spelled out in the Spending Reduction Act of 2012, passed by a razor-thin, Republicans-only vote on Dec. 20, 2012. The Congress that passed it expired on Jan. 3 of this year, so the bill is dead.

Oh, OK. The House bill passed with “Republican only” votes so it doesn’t matter ? The real story is the Obama and Democrats’ gamesmanship. What is their position?

The Senate plan would replace the $85 billion of cuts this year with $110 billion of cuts and taxes, reducing the defense cuts to $27.5 billion and raising (hopefully) $54 billion with the “Buffet rule,” the new millionaire income tax.

I thought we passed a “millionaire tax” last January 1 ? Well, that was only the first “millionaire tax” which affected those with incomes above $200,000. Now they want another one. Why ? Because that’s what Democrats do.

To reduce the deficit in a weak economy, new taxes on high-income Americans are a matter of necessity and fairness; they are also a necessary precondition to what in time will have to be tax increases on the middle class. Contrary to Mr. Boehner’s “spending problem” claim, much of the deficit in the next 10 years can be chalked up to chronic revenue shortfalls from the Bush-era tax cuts, which were only partly undone in the fiscal-cliff deal earlier this year. (Wars and a recession also contributed.) It stands to reason that a deficit caused partly by inadequate revenue must be corrected in part by new taxes. And the only way to raise taxes now without harming the recovery is to impose them on high-income filers, for whom a tax increase is unlikely to cut into spending.

Even the New York Times people have to know that tax increases on high income people adds to unemployment and causes the really rich to flee to other countries. Unless, of course, they have bought favors from Obama. As for “revenue” the government’s share of the GDP is the highest since World War II and well above historic norms, no matter what the tax rates were

As for entitlements, Republicans mainly want to cut those that mostly go to the middle class and the poor, while ignoring nearly $1.1 trillion in annual deductions, credits and other tax breaks that flow disproportionately to the highest income Americans and that cost more, each year, than Medicare and Medicaid combined. Clearly then, there is both ample room and justification to reduce the deficit by curbing tax breaks at the high end, as Mr. Obama has proposed and Republicans have rejected.

Those “tax breaks” are the home mortgage deduction and other deductions that are of long standing (like state and local taxes and tax exempt municipal bonds). What the Democrats want is to have no limits on spending. I don’t believe that the Times’ people are so stupid and ignorant that they do not realize we are asking for the situation of Japan, which used Keynesian spending twenty years ago to deal with a real estate bubble collapse. They are still mired in a stagflation economy after a generation.

I will be very disappointed but not particularly surprised if the GOP caves in once again to the old tax now and cut spending later routine that we have seen before. It might be enough to get a third party started if it happens again. The Whigs got too far from their base in 1854. It could happen again.

For an important and entertaining history of the Whigs, read this.

The three most important components of that political culture were the Whig commitment to “improvement” (including both self-transformation as well as national economic improvement), to morality and duty rather than equality and rights, and to national Page [End Page 74] unity rather than local diversity.[4] Their opposition to Andrew Jackson and Jacksonian Democracy did not follow the lines of Schlesinger, which pitted progressives who wanted to use an expansive government to help farmers and the victims of robber-baron capitalism against monied exploiters who wanted to keep government small and impotent against their greed. Instead, it was the Whigs who advocated an expansive federal government—but it was a government that would seek to promote a general liberal, middle-class national welfare, promoting norms of Protestant morality and underwriting the expansion of industrial capitalism by means of government-funded transportation projects (to connect people and markets), high protective tariffs for American manufacturing, and a national banking system to regulate and standardize the American economy. Howe’s Whigs were the embodiment of Horatio Alger, of upward striving, of the triumph of reason over passion, of the positive liberal state, [5] and the counterparts of Disraeli’s “one nation” conservatism.

Arthur Schlesinger libeled more than just Calvin Coolidge.

UPDATE: Bob Woodward is now hitting back at the critics of his book.

The president and Lew had this wrong. My extensive reporting for my book “The Price of Politics” shows that the automatic spending cuts were initiated by the White House and were the brainchild of Lew and White House congressional relations chief Rob Nabors — probably the foremost experts on budget issues in the senior ranks of the federal government.

Obama personally approved of the plan for Lew and Nabors to propose the sequester to Senate Majority Leader Harry Reid (D-Nev.). They did so at 2:30 p.m. July 27, 2011, according to interviews with two senior White House aides who were directly involved.

Nabors has told others that they checked with the president before going to see Reid. A mandatory sequester was the only action-forcing mechanism they could devise. Nabors has said, “We didn’t actually think it would be that hard to convince them” — Reid and the Republicans — to adopt the sequester. “It really was the only thing we had. There was not a lot of other options left on the table.”

A majority of Republicans did vote for the Budget Control Act that summer, which included the sequester. Key Republican staffers said they didn’t even initially know what a sequester was — because the concept stemmed from the budget wars of the 1980s, when they were not in government.

At the Feb. 13 Senate Finance Committee hearing on Lew’s nomination to become Treasury secretary, Sen. Richard Burr (R-N.C.) asked Lew about the account in my book: “Woodward credits you with originating the plan for sequestration. Was he right or wrong?”

“It’s a little more complicated than that,” Lew responded, “and even in his account, it was a little more complicated than that. We were in a negotiation where the failure would have meant the default of the government of the United States.”

No doubt the story will grow over the next week.