Ending the Threat of Sequestration and the National Game of "Chicken"
June 28, 2012
The last thing the United States needs at the end of a difficult election year is a massive crisis over federal spending and national security—one triggered by the 2011 Budget Control Act, which mandates roughly $1.2 trillion in automatic spending cuts over 10 years starting at the beginning of 2013.
The Congress passed this self-destructive legislation in what amounted to a giant game of “chicken” in an effort to force itself to agree on meaningful budget reform. The practical problem is that the nation, the president, and the Congress are now all hostages to that same, ongoing game of chicken. If Congress does not act, there will be massive cuts in federal spending on January 2, 2013, threatening America’s security and economic health. These mandatory cuts are called Sequestration, and they would come a quarter of the way into the FY2013 fiscal year after much of that year’s budget is already spent.
The Obama administration is now refusing to plan for this sequestration in an effort to force the Congress to take action to halt such cuts. This means the cuts to the FY2013 budget might well come under conditions where deciding how to actually implement them on a program-by-program basis would take additional months. This would deprive whatever administration is elected in November of much of its flexibility in making cuts where they do the least damage, forcing it to cut the “softest” programs with the lowest cancellation costs wherever possible and regardless of their relative merit.
Massive cuts in the federal budget would have to take place regardless of the economic crisis in Europe, the slowdown in China, the state of the U.S. economy as it entered 2013, and the significant political and psychological impact on the global economy. It would mean cutting key aspects of national security in spite of the war in Afghanistan and tensions with Iran and North Korea, and it would send the worst possible message to the world at a critical time.
This outcome would make the normal game of chicken—played by two drunken, semi-suicidal teenage drivers—seem almost wise and balanced by comparison. Instead of two cars hurtling down the highway and risking death if the more rational player does not suddenly turn aside, the United States now has two political parties rushing toward sequestration. Rather than risking a head-on collision between cars, sequestration risks a head-on rush toward another round of recession and the crippling of key aspects of defense.
It is also critical to note that the real impact of this legislation would be short term and immediate, not long term. Even the most divided and partisan Congress would never implement the self-destructive terms of the Budget Control Act for more than the FY2013 fiscal year. What will really happen, if more rational congressional players do not find some way to avert disaster, is that the coming year’s budget would have to be cut by at least $71 billion and the newly elected administration and Congress would then have to do their best to salvage the result.
Unfortunately, there is no clear picture of just how bad things will be in FY2013 if sequestration does occur. While sequestration is set to become effective this January, there is considerable uncertainty as to what the exact impact on the FY2013 budget will be, and think tank estimates of the amount to be cut range from $71 billion to nearly $110 billion.
There is currently no way to know which programs would be affected and what the damage to the national interest will be. The uncertainties as to how the cuts mandated in the legislation should be applied have already led well over a quarter of program managers in the Department of Defense to reevaluate their program budgets for this fiscal year just in anticipation of sequestration. These uncertainties include the fact the administration has no clear position on what wartime activities could be cut or whether it will take advantage of options like exempting military personnel.
What is clear is that national security would suffer most: Some 42 to 42.6 percent of the cut would come from defense and national security; 27 to 27.9 percent would come from nondefense discretionary spending; 14.6 to 16 percent would come from interest payments; and 14.8 to 15 percent would come from entitlement spending (some 11 percent from Medicare and 4 percent from the mandatory spending). Discretionary spending cuts will be executed evenly across two groupings, one consisting of the Department of Defense and another consisting of other discretionary accounts. As for the human aspect, one estimate is that the impact of sequestration goes as high as 1 million jobs—although any such numbers are little more than guesswork.
The challenge now is how to stop this game of chicken, limit defense and other budget cuts to the serious levels already in the budget, and give the new administration and the Congress time to act in finding a rational solution to the nation’s debt and spending problems. This cannot be done by simply hoping that the more rational player will turn aside at the last moment. It requires preparation and compromise at a time of bitter partisan politics. The Congress and administration need to act now to plan a way out, taking action preferably before the election, or at the latest just afterward. They also need a nonpartisan set of options from a neutral voice—one where both sides can say they may have deferred their most critical issues but did not concede.
There are three options that could help. There are still three highly respected and nonpartisan bodies that could present a range of options for Congress to discuss and eventually act on, hopefully well before the collision date of January 2, 2013.
The first option is to ask the Congressional Research Service (CRS) to examine the full range of legislative options that the Congress could take to avoid cuts in FY2013, from deferral to amendment to repeal. This should involve asking CRS to examine the lead times necessary for action and the risks in delay. It does not mean asking CRS to choose among parties, ideologies, taxes, or entitlements. It means giving the Congress and the American people a clear, nonpartisan legislative road map to the various ways out of the game. As some of the wiser members of Congress have already suggested, even deferring the cuts beyond FY2013 would help a great deal. CRS might also help, however, by at least outlining what sections of the Budget Control Act could be amended to forestall self-destructive confrontation while retaining the impetus for a serious fiscal reform effort.
The second option would be to task the Congressional Budget Office (CBO) with examining the fiscal, economic, and programmatic risks of sequestration in FY2013. A detailed and specific analysis of the impact of sequestration would help jolt Congress out of its current level of vague and theoretical thinking on the subject. CBO could be tasked at the same time with examining the fiscal and economic consequences of various options for amending, deferring, and repealing the Budget Control Act and ways to make it effective—rather than destructive—in serving the national interest.
The third option would be to task the General Accountability Office (GAO) with analyzing the risks of sudden cuts in the budget in FY2013 and the practical difficulties in rushing into given types of cuts. This would at least alert all the members of Congress, the media, and the American people to just how dangerous acting on January 2, 2013, would be. All three of these options could be pursued either on their own or concurrently.
Taking advantage of these options can only define the path the nation should follow. It cannot stop the Congress from playing chicken to the bitter end of actual sequestration if it chooses partisanship over patriotism. It cannot stop this current game from leading to a two-party collision that can drag the United States and much of the rest of the world into a new economic crisis.
Real success requires both parties, and both houses of Congress, to put the national interest first and actually choose a constructive alternative to sequestration as soon as possible. It requires Congress to recognize that the threat of committing immediate suicide is not a deterrent to long-term fiscal disaster. At some point patriotism, compromise, and maturity would still have to dominate the political scene.
However, doing the proper planning to avoid sequestration would at least provide a comprehensive warning of the damage involved and provide Congress with a set of practical steps that can occur before the coming election. It would help focus the media and the voters on just how serious the risks really are and make some kind of practical start at protecting our security and our economy.
Anthony H. Cordesman holds the Arleigh A. Burke Chair in Strategy at the Center for Strategic and International Studies in Washington, D.C.
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© 2012 by the Center for Strategic and International Studies. All rights reserved.