My crystal ball on how the sequester will play out

Lots of pundits are puzzling through the politics of the federal sequester that began March 1, trying to figure out how long it will last and what the end game will be. If it were simply a matter of exercising common sense, it would have never occurred in the first place. Neither party claims it wanted the sequester, so a one line law passed by both the House and the Senate repealing the sequester would have done the trick. But of course what parties say they want and what they actually do are two different things. The reality is that neither party nor the White House saw advantage in capitulation and Republicans simply refuse to compromise.

The sequester could be moot by March 26, which is when the current continuing resolution funding the government runs out. If no new resolution is passed, sequester will be the least of the government’s problems. It will simply shut down, except for whatever is considered to be emergency services. So federal employees worried about whether they will be furloughed one day a week will have bigger problems to worry about: total unemployment, at least until something is passed into law. The experience in 1996 didn’t go well for Republicans, so it is probably something they will not want to repeat. Time will tell.

The earliest impact of the sequester is going to be on constituencies that Republicans care the most about: defense and the massive military industrial complex that depends on defense spending. Federal employees may have thirty days to avoid furloughs, but defense contractors won’t be so lucky. This means that Republicans will endure most of the initial heat for blocking a resolution to the sequester. And the impact will fall most heavily in red states. Here in Virginia, our governor Bob McDonnell is already squealing, due to the huge defense contractor community both in the Washington suburbs and in the Hampton Roads area. The bright red state of Texas is also likely to be one of the first to get squeezed as well, as they also have their thumbs deep into the federal defense pie. They also host huge bases where much of the surrounding community has their livelihood dependent upon spending at these bases, such as Fort Hood.

Doubtless the military industrial complex is already frantically dialing their senators and legislators asking them to strike a deal. The only question is how long Republicans will choose to hold out against this squealing. And that depends on Republicans not affiliated with the Tea Party and whether they will bolt. If they find common ground with House Democrats, they would have a majority to end the sequester. This has been the tactic that Speaker Boehner has repeatedly used so far when he cannot convince his own party to take necessary action. What is unclear is whether enough pressure can be exerted to affect this change.

It’s more likely all parties will find a reason to drag it out through March 26. The question then becomes not the sequester, but what can pass a divided congress in the way of a continuing resolution to fund the government. What would normally happen is a split the difference bill between the House and the Senate. The Senate would probably not pass a continuing resolution that funds the government at the sequester rate through the end of the fiscal year without it being softened through tax increases. The House will probably not approve any resolution that increases taxes.

My bet is that in the end it will be the defense cuts that force the bargain and affect political compromise. The rationale from Republicans will go something like this: “We can no longer afford to jeopardize our nation’s security by these unilateral cuts to defense.” The compromise: ditch the defense cuts, but keep the non-discretionary cuts in place, but spread this pain over all discretionary spending. The deal will be in essence to cut the sequester in half, at least through the end of the fiscal year, and leave it in fiscal year 2014 to be figured out through the appropriation process. This way everyone sort of wins. Defense takes a smaller hit, but it will still be considered “manageable” by Republicans. Non-defense discretionary spending will be trimmed as well, but to the 2%-3% level vs. the 5%-6% for the year that has to be spread out through the end of fiscal year 2013 now.

Anyhow, that’s my crystal ball. We’ll see how this all works out, but one thing is certain: it won’t be easy or pretty.

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