The end of the world is coming. You've heard, haven’t you?
On January 2, 2013, two fiscal storms – tax increases and sequestration – will combine to make one terrifying, destructive economic mess that will completely decimate the country.
Or something like that. I know it’s going to happen because the media says so nearly every day. And I’m pretty sure Trump tweeted something like that – in between calling for a revolution – so it must be true.
The tax increases are currently under debate (if by debate, you mean that each side has dug in their heels to play a staring game). But what about sequestration? It sounds terrible. And it’s hard to pronounce which makes it sound more terrible. But here’s what it is: it’s an arbitrary line in the sand.
In 1985, the Gramm-Rudman-Hollings Deficit Reduction Act (GRHDRA) created the notion of sequestration. The idea is that if spending exceed revenues in the budget, spending should automatically be cut. Shocking stuff, right?
Of course, spending always exceeds revenues. That’s how we got into this mess in the first place. But you don’t hear about sequestration because Congress has an out: it keeps raising the spending caps.
Remember this time last year? In order to ward off that immediate-world-ending crisis, President Obama raised the debt ceiling by $400 billion and then got the green light for another $500 billion for this next fiscal year. As part of the year, Congress agreed to make cuts – only they didn’t say which ones (they did agree that Medicare and Social Security will not be affected). That was left to a special “super committee” who, despite a flurry of activity and a lot of press conferences, did absolutely nothing. The deadline for making those cuts came and went about this time last year.
But here’s the big secret (which I leaked to readers last year): it’s a fake deadline.
The deadline was created by legislation, the Budget Control Act of 2011. It wasn’t handed down on stone tablets on Mt. Sinai and it isn’t a part of the Constitution. It’s simply a public law. It was voted in by Congress and – here’s the fun part of Congress being Congress – it can be voted out by Congress.
And I’m betting it will be. No, not a wholesale elimination. But incremental changes. Congress simply isn’t going to allow those across the board changes.
Don’t believe me? Despite the hype, there have been signs for a bit that a total sequestration isn’t going to happen. Last year, Sen. Pat Toomey (R-PA), a member of the super committee, suggested that across the board cuts was a bad idea since it would affect military spending (the military remains optimistic). Post-election season, House Speaker Boehner (R-OH) and President Obama have been talking compromise. And even the report released by the Office of Management and Budget (downloads as a pdf) stated that cuts would result “if the sequestration were to occur…”
If. If. If.
Last year I likened those spending cuts to a bad diet. I stand by that analogy. The sequestration limits are like your goal weight. Congress keeps swearing they won’t get there and yet, they keep reaching for another pumpkin cupcake after dinner. It’s easy enough to move that line. What’s one more pound? Or a few billion extra in spending? Because if you keep moving the number, it will be okay. And that’s what’s going to happen.
After Thanksgiving, I say Congress is whipping out the fat pants. You just watch.
Article originally published on Forbes by Kelly Phillips Erb
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