As Greg noted earlier, there’s real disagreement among congressional Democrats on how to deal with sequestration. According to The Hill, Montana Senator Max Baucus, chairman of the Finance Committee, wants to avoid serious individual or corporate tax reform and set them aside for a future effort to “overhaul of the tax code so that they could be used to offset lower tax rates.” Michigan Senator Carl Levin, by contrast, wants to replace the sequester with savings from the tax code, in order to avoid large defense cuts. And of course, Republicans are prepared to let sequester cuts go through — they can just blame President Obama if the economy goes south. Even still, there are plenty in the GOP who don’t want the sequester’s cuts to military spending.
Obviously, the official Democratic position is to avoid the sequester with a “balanced” package of spending cuts and tax increases. It’s the cornerstone of President Obama’s rhetoric, and it has buy-in from most Democrats in Congress. But it’s worth noting that this is not good policy at all. At most, it’s the best of several terrible options, ranging from the full sequester to the GOP’s preference for further spending cuts.
Recall that the sequester was engineered to force Congress and the president to work out a long-term debt reduction plan. The good news is that we’re almost done stabilizing the debt — according to the Center on Budget and Policy Priorities, we need an additional $1.4 trillion in savings to stabilize the debt-to-GDP ratio at 73 percent by 2022. That’s $140 billion a year, or $120 billion when you include interest savings.
A fifty-fifty split of spending cuts and new revenue leaves you with $60 billion of each — a paltry sum, in the scheme of things. Indeed, you could delay further deficit reduction for the next few years, and still have room to spare with tax increases and spending cuts.
All of this is to make a simple point: Rather than offset the sequester, Democrats and Republicans should agree to ignore it. Not only is further deficit reduction unnecessary, it’s also counterproductive – the last year of fiscal tightening has yielded slow growth and a stagnant job market.
Since there’s no chance for renewed stimulus from Congress — and the Republican Party is convinced spending won’t help the economy — avoiding austerity is our best hope for a sustained recovery. Delaying the sequester, or repealing it without offsets, would make a good start.