BEYOND THE NUMBERS
With some policymakers pushing to forestall the defense cuts that are slated to make up half of the $1.2 trillion in automatic spending cuts scheduled to start in January 2013, it’s important to remember why Congress and President Obama agreed in the Budget Control Act to split those automatic cuts equally between defense and non-defense programs.
The answer is simple.
In the negotiations leading up to the Budget Control Act — including those that Vice President Biden chaired this spring, the subsequent negotiations between President Obama and House Speaker Boehner, and the final negotiations in late July and early August — the Administration sought an automatic deficit-reduction trigger (or “debt fail-safe”) that would be pulled if Congress missed the fiscal targets in a final agreement. This trigger would both cut spending and raise revenues by trimming tax deductions, credits, and other writeoffs that are known collectively as tax expenditures.
Republicans, however, refused to include any revenue increases in an automatic deficit-reduction measure. This posed a dilemma for the policymakers crafting the Budget Control Act. How, if revenues were exempt, could they design the automatic deficit-reduction mechanism that would take effect if the congressional “supercommittee” failed so that both parties would have a stake in reaching a deficit-reduction deal?
Ultimately, Democratic negotiators acquiesced in Republicans’ insistence that taxes (including tax expenditures) be shielded from the trigger. Leaders of both parties then agreed to divide the automatic cuts equally between defense and non-defense programs.
Leaders of both parties basically agreed to adopt the formula in the bipartisan Gramm-Rudman-Hollings laws of the 1980s, which set annual deficit targets enforced by automatic spending cuts if Congress missed the targets. Gramm-Rudman-Hollings split the automatic cuts equally between defense and non-defense to give both parties a strong incentive to meet the deficit targets.
If Congress backs away now from the automatic cuts in defense that the Budget Control Act calls for, Republicans will have little incentive to negotiate a balanced deficit-reduction deal. Their top priorities — tax cuts and defense programs — will both be protected. The cause of deficit reduction will be set back as a result.
Looked at another way, shielding defense from the automatic cuts would effectively take off the table any approaches to deficit reduction other than a one-sided approach that places all of the burden on domestic programs and international aid. The almost inevitable result would be either continued stalemate or unbalanced deficit reduction that hits low- and middle-income families the hardest and asks for far less sacrifice from the highest-income households.
Policymakers who want to scale back the automatic defense cuts can do so — without weakening efforts at deficit reduction — by agreeing on a meaningful revenue contribution to help address our fiscal woes. The Bowles-Simpson, Rivlin-Domenici, and Gang of Six plans all included significant revenue contributions. Indeed, every Democratic offer in the supercommittee would have raised substantially less revenue than these three bipartisan plans did. And during the supercommittee’s deliberations, Democrats offered at one point to reduce automatic defense cuts by a dollar for every dollar that the supercommittee produced in revenue increases. The Republicans rejected the offer.
In short, policymakers who want to shield the Pentagon need to step up to the table and agree to raise revenues to help pay for it.