Administration Could Lose Big On Sequestration/Debt Ceiling Battle

Let me review the bidding. So far, the President got $600 billion in new taxes (plus the return to normal payroll tax levels and the new taxes to support ObamaCare). The Budget Control Act (BCA) already imposed $1 trillion in spending cuts. The next fight will be over more spending cuts in the context of the need to increase the debt ceiling. Senator McConnell’s opening position is one dollar in spending cuts for one dollar of increase to the debt ceiling. Even if the result is no more than what was proposed by the BCA, another $1 trillion in spending cuts, this is still $2 trillion in cuts for $600 billion in higher taxes. How is this outcome a win for the administration?

The resurrection of the so-called Grand Bargain would seek to reach a target of approximately $4 trillion in total spending cuts and tax hikes. But there is no way the President can get Congress to go along with any more tax increases. So, such a bargain would have to rely on finding an additional $2.4 trillion in spending cuts over the next decade.

Imposition of the current spending cuts will do serious damage to the administration’s domestic agenda and national security objectives. The White House wants to spend more on education, job creation, the environment, etc. There will be little available for such initiatives under a sequestration scenario. The decision taken just before the New Year to delay the imposition of the second half of the BCAs spending reductions for two months will make it even more difficult to find the required reductions in the remaining seven months of the 2013 fiscal year without breaking the force and undermining most major procurement programs.

Additional reductions to the defense budget beyond the current $485 billion will play havoc with the administration’s national security strategy. There is no way that the Department of Defense can pursue the current strategy with its pivot to Asia-Pacific while absorbing a trillion dollars in budget reductions. How can a defense establishment facing such devastating cuts implement current strategies to deal with Iran, North Korea, the growing Al Qaeda threat in the Maghreb and the return of the Taliban to Afghanistan? The credibility of U.S. security guarantees to friends and allies around the world will be vitiated.

From this perspective, the budget deal achieved in December seems little more than a Pyrrhic victory for the Obama Administration. Not only is the White House facing a bruising fight over spending cuts but, almost regardless of the results over the next several months, a future in which it is not going to have the resources to meet very ambitious domestic and foreign policy agendas.