Sequestration debate: The numbers mislead

There's an understandable, though unfortunate, tendency to look at the federal budget cuts slated to kick in this week and think, "What's the big deal?"

The $85 billion in automatic cuts set to take place over the remainder of the year are but a thin slice of overall federal spending. Over the next decade, the annual cuts put in place by the bipartisan 2011 debt-ceiling deal — a process known as "sequestration" — are projected to reduce federal spending by just 2.4 percent, according to an analysis by the conservative Heritage Foundation.

To families, businesses, and state and local government officials who adjusted to the Great Recession's lean times, it could seem like the federal government is getting off easy. "Big whoop," tweeted one skeptical Minnesota lawmaker last weekend.

But two days from the sequester's start on Friday, the potential impact of what misleadingly appears to be a small cut should not be underestimated. Yes, federal spending does need to be reined in. But the sequester is a lousy and lazy way to do it that recklessly puts a still-feeble economy at risk with little reward — a reason why its critics include leading economists, many business leaders, medical providers and the head of the respected, nonpartisan Congressional Budget Office.

The CBO has warned repeatedly that the cuts could send the economy back into recession, while the respected Bipartisan Policy Center estimates that a million jobs will be lost over the next two years if Congress cannot head off sequestration. The BPC also said the cuts will do little in the long term to delay the nation from reaching troubling levels of long-term debt.

The cuts "are dumb and they are stupid, stupid, stupid," said Erskine Bowles in a recent Politico interview. Bowles coauthored the Simpson-Bowles deficit-reduction plan, which called for phasing in spending cuts when the economy improved. The rhetoric is harsh, but it's also deserved. A few budget basics explain why.

A critical point is that sequestration's cuts don't come out of the whole federal budget, which is why the 2.4 percent overall figure is misleading. Instead the cuts leave the biggest slice of the federal budget relatively untouched and extract the bulk of funds from two smaller categories: discretionary defense spending and discretionary domestic spending. "Less than 15 percent of the cuts would fall on mandatory spending, which consumes 62 percent of the federal budget," the Heritage analysis stated.

The sequester's lighter touch on mandatory spending means other parts of the budget take a bigger hit. Affected defense programs face a 7.8 percent annual cut. Domestic discretionary spending — which includes medical research, an area critical to Minnesota's economy — is looking at a 5.2 percent annual cut. It's also worth remembering that Congress and the Obama administration have already mined these budget areas for previous cuts under the 2011 debt-ceiling deal.

If sequestration takes effect Friday, it won't be as if someone flipped a switch that instantly puts the economy into a tailspin. Instead, the effects will ripple through in Minnesota and elsewhere. A scheduled 2 percent cut to Medicare providers — an often-overlooked part of the sequester — would also squeeze the health care industry, one of the state's leading employers.

"My biggest concern — the very fragile rural hospital that already has thin margins," said Lorry Massa, the Minnesota Hospital Association's president and chief executive officer.

Advocates of sequestration argue that it may be the only way to cut spending, given political intransigence in both parties, and that short-term pain will yield long-term economic growth.

The reality is that sequestration is cutting merely for cutting's sake, and it would drain investments in education, research, and drug and food safety needed for future prosperity. "This isn't growth-enhancing," said Isabel V. Sawhill, a Brookings Institution budget expert. "It's growth-retarding."