As a follow-up to my earlier blog post on the responsibility for and consequences of sequestration, I want to underscore that the entirety of the Budget Control Act (the resolution to the 2011 debt ceiling crisis, which created the sequester) was about shrinking government, not fiscal responsibility. As I previously noted, sequestration will harm the economy, and perversely increase the debt-to-GDP ratio to 76.3 percent by the end of fiscal 2013, from 76.1 percent without sequestration. And by defunding public investment (a key driver of long-run economic growth) and delaying economic recovery, thereby incurring more long-run economic scarring, sequestration will leave a poorer country to service larger relative debts.
But even ignoring the macroeconomic damage wrought by sequestration, this across-the-board meat cleaver approach to cutting spending is often fiscally imprudent even on a programmatic level.
For instance, the Office of Management and Budget estimated that the Internal Revenue Service tax enforcement department would see $436 million dollars of budget authority sequestered in fiscal 2013. (This estimate predates the lame duck deal’s two-month delay, although the fiscal 2014 cut would be larger.) But by all estimates, marginal increases in funding for tax enforcement pay for themselves multiple times over. In fiscal 2012, IRS enforcement raised $50.2 billion in revenue, or $2.3 million per enforcement agent. Former George W. Bush administration IRS Commissioner Mark Everson estimated that every additional dollar spent would return $4 in revenue, for $3 in deficit reduction (Sawickey et. al 2005). That would imply that the full fiscal 2013 cut could add $1.3 billion to the budget deficit.
In a similar vein, the U.S. Green Building Council highlights how sequestration’s across-the-board design will cut energy efficiency programs that save the federal government operating expenses, notably the energy efficiency programs of the Department of Defense and General Services Administration. And the government may end up having to pay penalties to suppliers if the sequester forces it to cancel contracts.
Blindly cutting government spending in a depressed economy is not fiscally responsible: You end up trading smaller structural budget deficits for bigger cyclical budget deficits, and a smaller economy makes the fiscal outlook relatively less sustainable. Similarly, cutting government programs that pay for themselves—simply because they are government programs—is not fiscally responsible.
That sequestration is in many ways counterproductive to long-run fiscal responsibility and will cause substantial disruptions to government operations and services is not an accident. Reports suggest some Congressional Republicans have concluded sequestration taking effect would best minimize the need for future tax increases—drowning government in Grover Norquist’s proverbial bathtub. As summarized by Ezra Klein, “The GOP’s top priority is resisting further tax increases, and given President Obama’s insistence on new revenues in any sequester replacement, their position on the sequester is exactly what you’d expect if you held that principle as inviolable.” This strategy echoes Republicans on the “Super Committee” refusing to replace the sequester with anything including a penny of revenue, as well as Speaker Boehner’s (R-OH) refusal to use tax loophole closers to offset any of the sequester. Indeed, Boehner’s oft-stated position that “Spending is the problem, and spending cuts are the solution,” encapsulates that this is explicitly not about deficit reduction.
The Budget Control Act and its sequester were never about fiscal responsibility—indeed its inception stemmed from the mind-boggling fiscally irresponsible act of hijacking the debt ceiling and playing chicken with a self-induced debt crisis.