WASHINGTON — There's a growing sense of resignation that the country's political leaders will be unable or unwilling to find a way around looming automatic spending cuts despite fresh signs the cuts would threaten the recovering economy.
On one side are conservative Republicans, outnumbered and frustrated, who see the painfully large cuts as leverage in their battle to force Democrats into concessions on the budget. On the other side are President Barack Obama and his Democratic allies, who are pressing to replace some of the cuts with new tax revenues.
The predictable deadlock – and looming cuts of $85 billion this budget year alone – has the potential to slam the economy, produce sweeping furloughs and layoffs at federal agencies and threatens hundreds of thousands of private sector jobs.
The cuts would shrink the Pentagon budget by 7 percent and force most domestic agencies to absorb a 5 percent cut concentrated in the last half of the budget year.
Just last year, GOP leaders were among the loudest voices warning of dire consequences for the military and the economy if more than $100 billion in cuts across the board went into effect. Now, even as defense hawks fume, Republicans see the strategy as their best chance of wringing cuts from costly government benefit programs like Medicare that Obama and his Democratic allies in Congress have been reluctant to touch.
The move is fraught with risk. Some $43 billion would be cut from the Pentagon budget between March and October if battling Democrats and Republicans can't agree on an alternative. Equal cuts would hit domestic programs, although the health care programs that are major drivers of future deficits are largely exempt.
"Talk about letting the sequester kick in, as though that were an acceptable thing, belies where Republicans were on this issue not that long ago," White House Press Secretary Jay Carney said Wednesday. "This is sort of political brinksmanship of the kind that results in one primary victim, and that's American taxpayers – the American middle class."
The automatic cuts, known as a "sequester" in Washington-speak, are the penalty for the failures of the 2011 deficit "supercommittee" and subsequent rounds of budget talks to produce an agreement.
Along with the threatened expiration of Bush-era tax cuts, the spending cuts were a major element of the so-called fiscal cliff crisis that gripped the country at the new year. While most of the tax cuts – except for upper-bracket income – were made permanent, negotiators could only agree on a two-month reprieve to the sequester after finding $24 billion in replacement money that reduced this year's round of cuts from $109 billion to $85 billion. Eight more years of cuts, totaling almost $1 trillion, still remain.
The austerity, economists say, would slow down the economy. Under a formula by the Congressional Budget Office, a $43 billion cut in defense spending could cost 300,000 jobs this year.
"In terms of the political dynamic here, defense spending is only 20 percent of the federal budget, but it's taking 50 percent of the cuts, which means it's going to be hitting the Republicans a lot harder than the Democrats," said defense analyst Loren Thompson of the Lexington Institute think tank.
On Wednesday, the government reported that the economy shrank by 0.1 percent in the last quarter of 2012 and said a slowdown in defense spending and uncertainty over the automatic spending cuts could have kicked in at the start of the year.
Last year, Republicans issued dire warnings of the impact the cuts would have. Defense hawks like Sens. John McCain, R-Ariz., and Lindsey Graham, R-S.C., made campaign tours in political swing states like Virginia and Florida lambasting the cuts, warning that the reductions would hollow out the Pentagon and cost many thousands of jobs. They reminded voters that the sequester was an idea developed by Democrats during 2011 negotiations on increasing the government's borrowing cap.
"The White House is responsible for the `sequester' that threatens our national security," House Speaker John Boehner, R-Ohio, said in September. "History has taught us we can't continue with policies that jeopardize our defenses or weaken our economy."
This year's GOP move to embrace the sequester was hatched at a recent strategy retreat for House Republicans in Williamsburg, Va. Much of the retreat was devoted to coming up with a way to solve a more urgent issue: finding a way to get the tea party-infused House to again increase the debt limit and prevent an economically devastating, first-ever default on U.S. obligations. The party agreed on a strategy to punt the debt dilemma until May or later and instead use the sequester as leverage in the budget debate.
A senior House GOP aide, who spoke on condition of anonymity to discuss party strategy, said some Republicans see the sequester as their best opportunity to achieve spending cuts. That strategy, however, is rife with potential to split open the Republican Party and pits the defense hawks against the tea party.
How people would actually react should the across-the-board cuts hit is anyone's guess. But it's not lost on anyone with institutional history that Republicans got creamed in a similar situation in 1995-96 when they sparked a partial government shutdown under the leadership of House Speaker Newt Gingrich, R-Ga.
On Tuesday, Senate Majority Harry Reid, D-Nev., said the warring parties should try to figure it all out, but he set up a clash with Republicans over using new taxes to fix the problem.
Reid said the sequester cuts should be replaced "in short increments" with spending cuts and revenues like repealing oil and gas subsidies, which were discussed in earlier negotiations.
"There are many low-hanging pieces of fruit out there that Republicans have said they agreed on previously," Reid said. There's a lot of things we can do out there, and we're going to make an effort to make sure that there is – sequestration is – involves revenue."
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The Deficit Has Grown Mostly Because Of The Recession
The deficit has ballooned not because of specific spending measures, but <a href="http://research.stlouisfed.org/fred2/graph/?s[id]=FYFSD" target="_hplink">because of the recession</a>. <a href="http://www.whitehouse.gov/omb/budget/Historicals" target="_hplink">The deficit more than doubled</a> between 2008 and 2009, as the economy was in free fall, since laid-off workers paid less in taxes and needed more benefits. The deficit then shrank in 2010 and 2011.
The Stimulus Cost Much Less Than Bush's Wars, Tax Cuts
Republicans frequently have blamed <a href="http://projects.nytimes.com/44th_president/stimulus" target="_hplink">the $787 billion stimulus</a> for the national debt, but, when all government spending is taken into account, the stimulus frankly wasn't that big. In contrast, <a href="http://www.huffingtonpost.com/2011/06/29/cost-of-war-iraq-afghanistan_n_887084.html" target="_hplink">the U.S. will have spent nearly $4 trillion</a> on wars in the Middle East by the time those conflicts end, according to a recent report by Brown University. <a href="http://www.washingtonpost.com/blogs/fact-checker/post/revisiting-the-cost-of-the-bush-tax-cuts/2011/05/09/AFxTFtbG_blog.html" target="_hplink">The Bush tax cuts have cost nearly $1.3 trillion</a> over 10 years.
The Deficit Grew Under George W. Bush
When George W. Bush took office, <a href="http://www.whitehouse.gov/omb/budget/Historicals" target="_hplink">the federal government was running a surplus</a> of $86 billion. When he left, that had turned into a $642 billion deficit.
The Deficit Is Shrinking
<a href="http://www.whitehouse.gov/omb/budget/Historicals" target="_hplink">Last year's federal budget deficit</a> was 12 percent lower than in 2009, according to the Office of Management and Budget.<a href="http://www.whitehouse.gov/omb/budget/Historicals" target="_hplink">The deficit is projected to shrink</a> even more over the next several years.
Investors Are Paying Us To Borrow Money
<a href="http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield" target="_hplink">The interest rate on 10-year Treasury bonds</a> is <em>negative</em>, according to the Treasury Department. Investors are even paying us for 30-year Treasury bonds, when adjusted for inflation.
Investors Are Not Running Away
<a href="http://www.businessinsider.com/niall-ferguson-has-been-wrong-on-economics-2012-8" target="_hplink">Conservative commentators</a> have been warning for years that investors will run away from Treasury bonds because of the national debt. So far it's not happening. <a href="http://www.huffingtonpost.com/2012/05/30/treasury-yield-record-low_n_1555975.html" target="_hplink">Interest rates on Treasury bonds</a> continue to hover at historic lows.
Health Care Reform Reduces The Deficit
<a href="http://www.huffingtonpost.com/2012/09/04/republican-platform-2012-factual-mistakes_n_1840795.html#slide=1461142" target="_hplink">Republicans have blasted the Affordable Care Act</a> as "budget-busting." But <a href="http://www.huffingtonpost.com/2012/09/04/republican-platform-2012-factual-mistakes_n_1840795.html#slide=1461142" target="_hplink">health care reform actually reduces the deficit</a>, according to the Congressional Budget Office.
The U.S. Is Borrowing Less From China
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We Spend A Lot On Defense
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We Spend A Lot On Health Care
<a href="http://www.cbpp.org/cms/index.cfm?fa=view&id=1258" target="_hplink">Health insurance, including Medicare and Medicaid, constituted 21 percent</a> of federal spending last year. In contrast, education constituted 2 percent of federal spending. Meanwhile, <a href="http://www.miamiherald.com/2012/08/19/2956609/middle-aged-blues-over-paul-ryans.html" target="_hplink">Mitt Romney and Paul Ryan have promised not to change Medicare</a> for Americans age 55 and older.
Republicans May Want Large Deficits For Now
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