As Obama signs sequestration cuts, his economic goals are at risk

Correction: An earlier version of this story misidentified Douglas Brinkley. It has been corrected.

With his signature this week, President Obama will lock into place deep spending cuts that threaten to undermine his second-term economic vision just four months after he won reelection.

Obama has repeatedly championed a set of government investments that he argues would expand the economy and strengthen the middle class, including bolstering early-childhood education, spending more on research and development, and upgrading the nation’s roads and railways. He has said his comfortable reelection victory in November shows the country is with him.

But none of those policies have come close to being enacted. Instead, after returning this weekend from a trip to the Middle East, Obama is set to sign a government funding measure that leaves in place the across-the-board cuts known as sequestration — a policy that undermines many of the goals he laid out during the 2012 campaign.

Obama thinks the cuts are, in his words, “dumb,” and he says they will slow the economy and harm priorities by cutting spending on education, research and development, and many other programs. Yet Obama now finds himself enacting a broad domestic policy that he doesn’t support and that he believes will harm the country.

“What he got in terms of the sequester is clearly incompatible with his investment plans,” said Jared Bernstein, a former White House economic adviser.

Obama is in this predicament after failing to persuade congressional Republicans to agree to a plan of tax hikes and more targeted spending cuts to replace the sequester. The president misjudged his GOP opponents, who have held firm in opposing more tax increases and, so far, have decided to stomach the sequester cuts.

House Republicans, who passed a budget last week with even deeper domestic spending cuts than the sequester, say Obama should be able to manage the government with significantly less spending.

“We want to restrain spending. They want to spend more,” House Budget Committee Chairman Paul Ryan (R-Wis.) said last week after passing the House budget. “We think taxpayers give enough to Washington.”

One of the clearest examples of Obama’s dilemma is early-childhood education, a centerpiece of his State of the Union speech in February. Obama has proposed offering preschool to all 4-year-olds from low- and moderate-income families, which research suggests would help move children up the economic ladder.

The idea isn’t cheap. W. Steven Barnett, the director of the National Institute for Early Education Research at Rutgers, who was consulted by the White House, has estimated it could cost up to $10 billion a year.

Rather than raising new funds to pay to expand early-childhood education, however, Obama is now being forced to slash it. The sequester this year will cut about $400 million from the Head Start early-childhood education program, which will mean that tens of thousands of poor children would lose access to it, according to the administration.

“It’s not in the right direction, and it is disappointing,” Barnett said.

The administration never expected the sequester to happen, a former official says, and Obama himself said during a debate last year that it would not occur. White House officials had judged that deep defense cuts included in the sequester would move Republicans — who had warned loudly of risks to the Pentagon — to embrace an alternative, as they did in a Jan. 1 tax deal that delayed the cuts for two months.

Obama has proposed changes to Medicare, Social Security and other programs to generate savings, as well as scaling back hundreds of billions of dollars of tax breaks that benefit the wealthy and corporations. Republicans oppose any new taxes.

Obama could have forced a confrontation over the sequester, threatening to shut down the government if Congress insisted on the spending cuts. He chose a different strategy, avoiding an immediate fiscal crisis while encouraging Congress to spend several months on its own trying to find a solution.

Historians note that presidents sometimes get what they want, as Obama did with health-care reform, or they are rebuffed, as George W. Bush was in attempting to privatize Social Security. But rarely do presidents find themselves enacting major policies they fundamentally oppose.

Lawrence Mishel, president of the liberal Economic Policy Institute, said Obama shoulders part of the blame. Since 2010, he said, Obama has spent too much time focused on the debt, including agreeing to significantly shrink domestic spending as part of his own budget proposals.

“I think they brought it on themselves to the extent that they validated the deficit issue,” Mishel said. “It was always the case that the actual budget policy being pursued contradicted the rhetoric in the campaign. Now it’s even worse.”

White House officials say they will continue to press forward on proposals that would not require new federal funding, such as raising the minimum wage, opening manufacturing institutes, revamping housing policies and overhauling immigration laws.

“The reality is that the president’s economic vision is broad and his economic strategy is calibrated to try to make progress on a number of fronts,” said Brian Deese, a top White House economic adviser. “There is no reason why we can’t work on issues where there is and has been bipartisan support in the past, and the existence of the sequester today shouldn’t stop that.”

Advisers say they also won’t give up on replacing the sequester, rejecting the notion that it will be permanent. The budget measure expires at the end of September, and another battle is already brewing for the summer. Obama will continue to nurture relationships with Republicans potentially willing to compromise.

“The president has already got public opinion on his side. He’s got an election on his side,” said Ben LaBolt, a Democratic strategist who was the spokesman for Obama’s reelection campaign. “Now he has to go get a separate set of votes.”

The sequester undermines Obama’s vision for middle class-driven economic growth in two significant ways, economists and his allies say. First, it takes tens of billions of dollars out of the economy in the next six months. The Congressional Budget Office, echoing other analysts, says that will slow the economy by 0.6 percent this year and destroy 750,000 jobs.

Second, the sequester reduces spending on non-defense discretionary spending, a budget category with a mouthful of a name but a central role in the president’s plans. This is the part of the budget where government invests in programs that pay off in the future, like education or clean energy research.

The sequester cuts more than $25 billion from discretionary spending in the next six months, a 5 percent reduction. It saves $1.2 trillion by cutting discretionary and defense spending over the decade. These budgets were already under pressure as a result of a summer 2011 deal to constrain spending.

“The sequester cuts the things that are the investments and spending that are the best for long-term economic growth,” said Neera Tanden, president of the Center for American Progress, which is also close to the White House.

Obama’s supporters say he has already accomplished a lot toward his vision of helping the middle class — namely by securing the revenue from $600 billion in tax hikes at the start of the year and through his health-care overhaul.

Some say that might have to be enough, given the Republican opposition in Congress is intent on dramatically shrinking government services.

“He has to be the firewall presidency,” said Douglas Brinkley, a historian at Rice University. “All he is really ultimately trying to do is protect the progressive legacy of the New Deal.”

Zachary A. Goldfarb is a staff writer covering the White House, focusing on President Obama’s economic, financial and fiscal policy.
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