by Rick McGahey, SCEPA Faculty Fellow

President Obama's team may think they are winning the public relations battle on the sequester, but in the process, they are losing the war over the best way to cut the debt and deficit.

The employment report for February came out this morning, and it is (finally) a strong report.  The unemployment rate declined to 7.7 percent, the lowest rate since December 2008.  But more importantly, job growth showed 236,000 new jobs being added to the economy, the first time in two years that monthly job growth has exceeded 200,000.  If we hit that mark every month, it is estimated we will reach 6 percent unemployment in 19 months.

However—and it is a big however—federal fiscal policy is working against a strong economic recovery, and Washington policy makers seem hell-bent on slowing or stopping the recovery.  And Republicans are actually winning the overall war over spending reductions, while the Obama Administration indulges in short-term public relations battles, missing the bigger picture.

In January, we restored some tax revenues paid by the wealthy as part of avoiding the so-called "fiscal cliff."  Bush-era tax cuts were allowed to expire for those making over $400,000 a year, instead of the $250,000 threshold that President Obama fought for during last year's presidential election.  These revenues probably don't hurt economic growth, as taxing the wealthy is less harmful than other tax increases.   (Social Security payroll taxes reverted to their usual level for workers, which is more economically harmful.)

But the bigger hit on the economy began on March 1--the automatic spending cuts passed by Congress in 2011, the "sequester," originally enacted in the 2011 debt ceiling deal. In 2011, Republicans in Congress would not agree on new revenues, and the sequester—an across-the-board cut to all discretionary spending, including the military—was put into place.

At the time, no inside-the-Beltway expert believed the specific sequester cuts would actually happen.  Although Republicans now want to blame it on the president, at the time they enthusiastically embraced the idea. Here's Paul Ryan (R-WI) in 2011, asked by Fox News commentator Sean Hannity why the sequester was a good idea: "Because we're cutting spending...What conservatives like me have been fighting for, for years are statutory caps on spending... We got that in law." 

The sequester was supposed to hit on January 1, but as part of the deal on the Bush tax cuts, it was put off until March 1, with many commentators assuming it wouldn't happen, and that Congress would negotiate a more sensible package.  But the president insisted on more revenues as part of any deal, and since about the only thing that unites Republicans any more is resisting any revenue increases, they refused, and the sequester cuts have gone into place.  

The Obama Administration thinks it is winning a public relations battle blaming the cuts on Republicans, but the truth is that Republicans are winning the overall budget battle. We are making large cuts in the federal debt, heavily tilted towards spending cuts.  A combination of spending cuts and new revenues of almost $4 trillion already has been enacted, close to the amount needed to stabilize the debt-to-GDP ratio.  But guess what?  That $4 trillion is made up of around $4 in spending cuts for every $1 in new revenue.  Even the Bowles-Simpson plan, much criticized by progressives and liberals for excessive proposed spending cuts, only called for $2 to $3 in spending cuts for each $1 of new revenue.  

So spending cuts are carrying the day.  But do we hear any calls from Washington, including the president, to stop these harmful reductions?  On the contrary—all we hear are more calls for cutting spending, "grand bargains" to reduce Social Security and Medicare benefits, and little prospect of any real balance between spending cuts and tax increases.  


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