Legislative Chicken: Sequestration and the Fiscal Cliff Explained
Like a cartoon character followed by a persistent black cloud, the Washington, D.C., area (along with other cities and towns reliant on federal or military spending) is under the threat of sequestration, set to dive off a “fiscal cliff.” The terms have been bandied about in presidential debates and editorial pages, but what exactly is sequestration, why is it coming up now, and why does it matter?
In short, unless Congress can figure out a way to trim $110 billion from defense and non-defense spending in Fiscal Year 2013 by January 2, mandated spending cuts will kick in. Yes, the same 112th Congress that failed to accomplish much of anything over the last two years and adjourned to campaign several weeks ago.
The question remains, why are we under the threat of sequestration? Simply put, the United States has a massive budget deficit. In order to create some fiscal discipline, Congress, in a rare bipartisan agreement, decided to create an incentive to develop a balanced budget through a “Super Committee.” Sequestration was supposed to be so undesirable that Congress would be forced to make the tough decisions on spending cuts or face cutting an equal amount of military and non-military spending cuts — $1.2 trillion over ten years, with $110 billion in cuts for Fiscal Year 2013.
Given the anemic legislative prowess of the 112th Congress, does it come as any surprise to you that this doom and gloom tactic didn’t work? That the Super Committee failed? That Congress didn’t come up with a balanced budget? I didn’t think it would. Any legislative body that would erect an artificial fiscal cliff as a way of installing non-existent fiscal discipline is admitting that the system is broken, compromise will never be achieved and the country is at-risk.
Sequestration is an ultimatum gone awry. It has created uncertainty about government spending, and that has significant implications for the private sector. What if you were trying to sell and install a boardroom audiovisual system to a government agency? The agency is not sure if it will still have authorization to buy it. In fact, the agency was supposed to be moving to offices across town, but it is now unsure if the offices are moving, because it is reluctant to sign a new lease without knowing exactly what is happening at the agency. Will there be a new boardroom? Nobody is sure.
The company that you work for sells a lot of AV to government agencies. But the market is suddenly paralyzed. Think of it this way: Are you personally going to make a major purchase, such as a new house or car, unless you really need to? In turn, will your local car dealer or realtor be making any major purchases if it’s not sure you and people like you will? The cycle continues until the uncertainty ends.
Sequestration is all about punting — it is about avoiding making tough spending decisions in an election year and leaving the damage for someone else to sort out. Could you imagine running your own business this way? If faced with difficult choices, would you cut all spending by 25 percent, or would you prioritize programs to eliminate, while preserving others?
Right now, lawmakers seem more intent on sparring over whether the January 2nd deadline means that defense contractors should be issuing notices warning about potential mass layoffs under the ominously-titled Worker Adjustment and Retraining Notification Act, also known as the WARN Act. The Department of Labor states that the situation is too speculative to require the notice. Congressional Republicans say the threat is real and the President is trying to avoid an embarrassing situation before the election. I am staying out of that dispute, but am highlighting it to underscore that as we are heading over the fiscal cliff, our leaders seem more concerned about who should be embarrassed, rather than governing.
We have about five months before the next budget resolution expires, and it is unknown how this high-stakes game of legislative chicken ultimately ends. Perhaps it is the collective citizenry who should be embarrassed.