StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Forget the Conference: A Sequester Is Still Likely

29 Oct 2013
Posted by Stan Collender

As I posted yesterday, House and Senate budget conferees will meet for the first time this week as they begin a process that has a built-in December 13 deadline. It's either budget agreement by that Friday the 13th or bust.

Bust is far more likely. Here's why.

1. There is no agreement about the problem. Almost all previous successfully concluded budget deals have been based on at least a tacit up front agreement about what the two sides are trying to accomplish. Without that this time, Republicans and Democrats will spend a great deal -- maybe even most -- of their time arguing about what they should be debating rather than the possible answers.

2. There's no need for a deal #1. This is not a situation where the political or economic world will collapse if a deal doesn't get done. The debt ceiling has already been raised, taxes won't be raised automatically, the government won't shut down, Wall Street isn't threatening higher interest rates if there's no deal to reduce the deficit, etc.

3. There's no need for a deal #2. Not only is Wall Street not demanding a big deficit reduction deal (see #2 above), but given the precarious state of the U.S... economy it likely prefers that no additional short-term deficit reductions be adopted beyond those already assumed with the sequester.

4. There's no need for a deal #3. The GOP doesn't have to negotiate on revenues. A sequester will occur 15 days after the first session of Congress adjourns (probably January 18) so the Republican default position will always be to do nothing and let that spending cut occur as scheduled.

5. The sequester is the least objectionable alternative #1. Yes, everyone hates the sequester and would like it to go away. But simply cancelling it isn't an option for House Republicans because that would be an increase in spending.

6. The sequester is the least objectionable alternative #2. Yes, everyone would like to replace the sequester with something else. The problem is that virtually everything else -- Medicare, Social Security and Medicaid changes, for example -- is less politically acceptable to Democrats than the sequester. Revenue increases are equally as unacceptable to Republicans. Other than gimmicks there's not much else.

7. Military spending is not as sacrosanct as it used to be #1. We are indeed already hearing about dire consequences if military spending is cut with another sequester. But House and Senate Republicans have already repeatedly demonstrated a willingness to throw the Pentagon under the budget bus if the only alternative is a tax increase and there's little reason to expect the situation to be different now than it has been the past few years.

8. Military spending is not as sacrosanct as it used to be #2. The military spending community hurt its credibility over last year's sequester fight when its forecasts of economic doom turned out to be a bit overstated.

9. A grand bargain on the budget is now acknowledged to be pure fantasy. I've been saying this for quite a while. House Budget Committee Chairman Paul Ryan (R-WI) and Senate Majority Leader Harry Reid have now said the same thing.

10. There's not much time. Six weeks may seem like an eternity when it comes to considering legislative changes, but given the Thanksgiving holiday, the actual amount of time available for serious discussions will be extremely limited. When you add in the initial political posturing that will take place and the need for the full conference of 29 members to bog down before a smaller group of negotiators takes over, there may be no more than about three weeks to come up with an agreement of any kind.

For all of these reasons, the best bet at this point is that the sequester already on the books for 2014 will take place as scheduled in January. It may be modified a bit to make it somewhat more palatable, but its still more likely than any alternative.

Reason #11

11) There simply isn't that much difference between a $986 billion spending level and a $967 billion spending level, particularly with the continuing economic recovery both reducing automatic stabilization spending and generating higher revenues through growth. The deficit is "fixing" itself automatically through the turn in the business cycle without the politicians doing anything.

Adopt California-style "no budget, no pay for Congress"

May I humbly suggest that we follow California's lead and amend the Constitution so that Congress cannot get paid if there's no budget?

This approach has worked wonders in California. What is missing in many places in the U.S. Federal system is an adequate "or else". Honor used to require that Congress complete it's constitutional duties, but the world has changed. A sample amendment might be: "If Congress fails to pass at least a full-year Federal budget prior to the start of each fiscal year, the members and their staff are not to be paid until they do."


Not quite

Actually, what unplugged the CA budget process was the removal of the 2/3 vote requirement for budgets, which essentially removed the GOP obstructionists from the budget process. Until then, a small but determined minority was able to hold the entire process hostage.(sound familiar?)

Short story shorter

Short story shorter, the Democrats made the fatal mistake back in 2011 of assuming that the sequester cuts would be something the GOP wouldn't like - fundamentally, they assumed the GOP was attempting to govern.

This assumption has clearly proven false - the GOP is in Congress solely to wreck, sabotage, and lie. They're even willing to allow military budget cuts (while asserting that such cuts "weaken our security") because they sincerely HOPE that something terrible happens before 2014.

The plan is simple: demand unreasonable and terrible cuts to "replace" the sequester, then spend the rest of the time until next Election Day blaming Obama for not shooting the hostage for them.

Even Less Objectionable Option?

Is your #6 too limiting? Since we should be able to stipulate that Republicans don't actually care about the deficit, is a deal in which they get tax cuts and Democrats get some kind of [more efficient] stimulus wholly impossible?

it is excellent, all previous

it is excellent, all previous with success over budget deals are supported a minimum of a implied up front agreement concerning what the 2 sides try to get done

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