Wednesday, April 25, 2012

It appears Obama's... wrong?

I've spent several hours over the last few days trying to wrap my head around Obama's threat to veto any spending bill which cuts discretionary spending below $1.047 trillion for next year.  In the Budget Control Act (BCA), which was the act which raised the debt ceiling last year, a series of budget caps were imposed, including a cap on discretionary spending for the 2013 fiscal year (FY2013), which runs from October 1, 2012 through September 30, 2013, of $1.047 trillion dollars.  It also included a "sequester", which is a series of automatic spending cuts which will go into effect on January 2, 2013.  This sequester could have been avoided if the budget supercommittee had managed to agree on budget cuts.  But the supercommittee failed, so spending will automatically be cut on January 2.  Under the sequester, the cap for discretionary spending will be reduced to $965 billion.

Obama appears to want to keep things at $1.047 trillion despite the sequester.  The director of Obama's Office of Management and Budget, Jeffrey Zients, sent a letter to Congressional Republicans last week saying any cut below $1.047 trillion would "break our bipartisan agreement".  But under the BCA, spending is set to be reduced to $965 billion, so the House Republicans' budget which cuts spending to $1.028 trillion should be seen as an improvement.

I think Obama's plan is to keep spending levels at the $1.047 trillion level through the rest of this year, which per Keynesian economic theory would keep the economy from slowing as a result of budget cuts before the election.  He would then, during the "lame duck" session of Congress, fight to get rid of the sequester.  He might be successful at that, since the sequester would devastate the economy and the national defense industry.  The sequester would chop the same percentage from every budget item (except for a few exemptions like Medicare and veterans' benefits), rather than making changes based on how well each department might be able to accommodate a cut.  Once he can convince Congress to re-open the BCA to adjust the sequester, he hopes to make the argument that any cuts would be bad and restore funding to $1.047 trillion.

I've had a tremendous amount of trouble wrapping my head around this issue.  It's not the only topic where I've disagreed with the President, but I find myself confused mostly by the weakness of Republicans in their response to all of this.  Their House budget doesn't get to $965 billion.  The Senate Appropriations committee, which includes 14 Republicans, agreed to budget based on the $1.047 trillion figure by a vote of 27-2.

So I just don't get it.  I'm a reasonably smart guy who follows this stuff pretty closely, but I just can't make any sense out of what either side is doing on this issue.  It sure looks like Obama is planning on breaking the BCA agreement while accusing Republicans of being the deal-breakers, and the Republicans appear to be going along with it.

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