Sequestration shoots at the wrong deficit reduction target

Sequestration shoots at the wrong deficit reduction target

- in Progressive Voices


In our nation’s never-ending federal budget wars, we hear a lot about the importance of “fixing the debt” and reducing the federal deficit.  We’re going to hear a lot more about this over the next two weeks, as Congress debates the federal budget for 2014. The good news is that almost everyone agrees on the importance of putting our nation’s fiscal house in order. Even better news is that we’re actually much closer to achieving our deficit reduction goals than is often assumed—contrary to the over-hyped rhetoric you hear on TV.

The bad news, though, is that Congress seems intent on pursuing deficit reduction in the most counter-productive and wrong-headed approach imaginable—the $1.2 trillion in across-the-board spending cuts known as sequestration.  Congress failed to repeal the first round of these spending cuts last month, and as a result, $85.3 billion in spending cuts have begun to take effect.  Sequestration is the wrong way to go about reducing our nation’s budget deficit—it will hurt North Carolina’s economy, weaken the fiscal position of the state budget, and damage key public investments like K-12 education, job training, and food safety.

Instead, Congress should take a balanced approach to deficit reduction that replaces the sequestration cuts for 2013 with equal amounts of new revenue and smart spending cuts. And more revenues are clearly available and economically feasible.  In February, federal revenues stood at just 16.9 percent of our total national economy, well below the 54-year historical average of 18 percent, as identified by the non-partisan Congressional Budget Office.

In taking this more balanced approach, Congress can benefit from some unexpected good news—we are actually much closer to putting the nation’s debt on a sustainable path than is often realized by policy makers. Since 2010, most mainstream economists have believed that the federal government needed to find about $4 trillion in deficit reduction over the next decade. And thanks to the $2.5 trillion in deficit reduction achieved in the Budget Control Act of 2011 and the fiscal cliff deal in January, we need to find only about $1.5 trillion in additional savings in order to hit the original $4 trillion figure. Given this lower deficit reduction, policy makers have more flexibility in choosing the right mix of spending cuts and new revenues.

The question facing policy makers is how best to achieve this much more manageable $1.5 trillion in deficit reduction—sequestration or more a balanced approach that includes revenues and smart spending cuts to those parts of the budget that are actually contributing to long-term deficits.

Since 2011, Congress has focused its spending cuts largely on the smallest category of the federal budget—so-called “non-defense discretionary” spending. Comprising less than a quarter of the federal budget, this category includes non-entitlement domestic programs like food safety, job training, K-12 education, and research and development.

As a result of the $2 trillion in cuts to these programs contained in the Budget Control Act, spending on these domestic discretionary programs are now at their lowest levels as a share of the national economy since the early 1960s—despite facing the demands of 21st century economy.

If allowed to go forward, sequestration would further reduce these domestic programs by an additional $1.2 trillion over the next 10 years, despite the fact that these programs are not the driver for our long-term budget deficits (the main drivers are health care entitlements says the Congressional Budget Office). And according to a range of independent analyses, these cuts would significantly reduce critical services across North Carolina and damage the national economy – potentially leading to another recession.

If deficit reduction is the goal, sequestration makes no sense.

As lawmakers debate the budget for 2014, instead of seeking deficit reduction through deep cuts to the smallest area of the federal budget, Congress should replace sequestration with a balanced approach that includes one dollar of new revenues for every dollar of smart spending cuts in programs that are actually the main drivers of the long-term budget deficit.

Allan Freyer is a Public Policy Analyst at the North Carolina Budget and Tax Center.