Thursday, January 10, 2013

Why Sequestration May Be The Least Worst Case

Why Sequestration May Be The Least Worst Case

"The debt ceiling is clearly the priority," said the city's leading independent budget analyst, Todd Harrison of the Center for Strategic and Budgetary Assessments in a briefing for reporters this morning. (Click here for CSBA's full report). Both Republicans and Democrats, Congress and the White House are aware of the stakes, he said, so "I'm optimistic they'll be able to increase the debt ceiling and avoid the worst consequences, a government default. I'm not confident [about] sequestration."

Given how far apart Republicans and Democrats are on how to avoid the sequester, Harrison said, both sides may well look at the automatic cuts and decide, "it's probably better than any deal we could negotiate with the other side."

Harrison spent much of his time running the numbers on terms of sequestration as revised by the last-minute deal passed New Year's Day. The new legislation reduces the blow to the Defense Department from the original $62.8 billion cut -- about 11.5 percent from every non-exempt account -- to a more modest $48.1 billion -- about 8.8 percent. Some of the difference is made up by increased tax revenue, some is simply pushed off to fiscal 2014, when the Defense budget will be about $4 billion lower than planned under the original sequester deal.

The revised estimate for the cost of sequestration is "plus or minus two billion dollars," Harrison caveated, given how hard the muddled law is to interpret and given that some details won't be known until the last minute, like how many billions of dollars appropriated by Congress have not been obligated on specific contracts by DoD. (Click here for the math in more detail).

But Congress can revise those details at will. Harrison's key point was more fundamental: With every day that passes, it gets harder for Congress to figure out a deal, so some sort of sequester is increasingly likely -- and while sequestration would be a stupidly self-inflicted wound, it's still better than a federal default. If sequestration is shooting ourselves in the foot, a default is shooting ourselves in the head.