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Trigger Cuts Would Add Layer of Austerity to Non-Defense Budget Come 2013

With the failure of the Super Committee just a terse press release away, members of Congress have already started the important work of getting rid of the defense cuts triggered by that failure. John McCain and Lindsey Graham are writing legislation to prevent the defense cuts from happening.

While a lot depends on what they use to replace the trigger cuts, and while a Presidential veto isn’t out of the question, it’s worth looking at what the trigger would actually do. The Center on Budget and Policy Priorities put out a good study of this. As they write, you’re looking at around a 9% cut in the non-defense discretionary programs impacted by the trigger (programs for the poor are mostly exempted), and a 9% cut in defense. In 2013, when these cuts take effect, you’re talking about a reduction of around $109.3 billion per year from those agency budgets. There is no back-loading of the cuts, it’s a straight $109.3 billion per year for 9 years. The reduction in interest payments on the debt get you to $1.2 trillion. If you take into account inflation, you could say that the cuts are front-loaded, actually. There are also a few cuts to mandatory spending.

Let’s look at the non-defense cuts, which nobody has written a bill on to avoid yet, as far as I can tell:

The $54.7 billion in annual non-defense cuts would come from both mandatory (entitlement) and discretionary programs. The mandatory cuts would include:

• Cuts in Medicare payments to providers and insurance plans (those cuts are limited to 2 percent of such payments in any year, or about $10.8 billion in 2013).

• About $5.2 billion in cuts in the other mandatory programs that are subject to sequestration, the biggest of which is farm price supports. A number of key mandatory programs are exempt from sequestration, including Social Security, Medicaid, CHIP, SNAP (formerly known as the Food Stamp Program), child nutrition, Supplemental Security Income (SSI), refundable tax credits such as the Earned Income Tax Credit, veterans’ benefits, and federal retirement.

Thus, in 2013 about $16.1 billion of the $54.7 billion in annual non-defense cuts would come from mandatory programs. This share would grow from year to year, reaching $22 billion by 2021.

The remaining non-defense cuts — about $38.6 billion in 2013 — would come from discretionary programs:

• For fiscal year 2013, the non-defense cuts would occur through across-the-board, proportional reductions in new funding for each discretionary program in the appropriations bills for the fiscal year, which Congress would already have enacted. (Veterans’ medical care and Pell grants would be exempt from those cuts.)

• For fiscal years 2014 through 2021, the cuts would occur through reductions in the statutory cap on total funding for non-defense discretionary programs for each of those years. The Appropriations Committees would then decide how to live within those newly reduced caps.

The $38.6 billion reduction in the non-defense discretionary caps would shrink from year to year, to $33 billion by 2021, because the mandatory cuts would grow and thus would account for somewhat more each year of the $54.7 billion in total non-defense cuts.

2012 is not seen as the year that the economy will roar back to life. In fact, if Europe implodes and some of the fiscal stimulus extensions don’t materialize, we could see a recession. And you can add to that these cuts to agency budgets, which would represent noticeable austerity in the face of a demand shortfall. You don’t have to disagree with Bernie Sanders’ assessment that no deal is the best deal to also say that the “best” deal is actually not very good.

The price of avoiding all of these cuts would be to keep the defense budget bloated, and that is a tough call for lawmakers. This is especially true in an election year, where the blame-gaming will be intense, and both sides would risk having the whole Village turn on them if they just undid the deal. I could definitely see the President swayed by this into announcing a veto threat, which makes the prospect of undoing more difficult.

Meanwhile, absolutely nobody cares about this in America. But maybe they should. They should at least care that Congress do something to boost the economy before the sequestration kicks in and adds a layer of austerity in 2013.

…The thing is, of course, that America is not broke and we can come up with ways that would simultaneously reduce the deficit and support job creation, by taxing things we want to discourage, by reducing budgets that we don’t need (like the imperialism budget) and by promoting the industries of the future.

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David Dayen

David Dayen