Congress Seen Allowing Cuts to Start as Pressure Tactic

The latest pressure tactic in Congress’s feud over how to halt $1.2 trillion in across-the- board federal spending cuts may be to let them take effect.

Democrats set on enacting tax increases and Republicans who oppose them would have a greater incentive to compromise following March 1 cuts in spending to government programs, known as sequestration, lawmakers in both parties said.

“When flights start getting canceled and the beef inspectors stop inspecting beef, I think that people will know what sequester is,” said Republican Representative Tom Rooney of Florida.

Though both parties agree the cuts may damage the U.S. economy and hamper national security, neither side is giving ground as lawmakers return to their districts for a one-week recess. It marks the latest showdown between Democrats and Republicans with no signs of movement as the deadline nears.

Members of President Barack Obama’s Cabinet and military leaders told lawmakers this week that the spending reductions would harm national defense and cut back programs such as education, food inspection and air-traffic control.

“My gut feeling is that they will not compromise before March 1,” Maryland Representative Chris Van Hollen, the top Budget Committee Democrat, said in an interview on Bloomberg Television’s “Political Capital With Al Hunt” airing this weekend.

‘Enough Pain’

“Then the question is, once the sequester begins to kick in, whether there will be enough pain for them to agree they have to compromise,” Van Hollen said.

Congress agreed to the automatic spending cuts, to be spread over nine years, as part of a deal to increase the U.S. debt limit in 2011. The reductions would be split almost evenly between defense and non-defense spending.

Pentagon contracts plunged 67 percent last month, according to data compiled by Bloomberg. That followed a drop in fourth- quarter defense spending that contributed to the first reported decline in the nation’s economy since 2009.

The Senate’s majority Democrats have proposed replacing this year’s reduction with a smaller defense spending cut, a halt in direct payments to farmers, and a tax increase that would impose a minimum 30 percent rate on top earners.

Republicans, who control the House and can block Democratic proposals in the Senate, voted last year to replace the defense cuts with reductions in non-defense programs.

‘Shock Effect’

When the spending cut begins, “which I think it will, I think it is going to have a shock effect on so many different programs and agencies and operations of the government,” House Appropriations Chairman Hal Rogers said in an interview for C- SPAN’s Newsmakers program airing Feb. 17. “Hopefully people can come to their senses and reach a realistic goal.”

“The cuts to the military of course are the most severe,” said Rogers of Kentucky. “That will, I think, require the layoffs of hundreds of thousands of civilian employees, not to mention military operations and maintenance.”

Leaving the automatic cuts in place would shave U.S. economic growth this year by 0.6 percent and cost 750,000 jobs by the fourth quarter, according to the Congressional Budget Office.

Public outrage at the effects of the cuts will push Congress to strike a deal, said Idaho Republican Mike Simpson, chairman of the House Appropriations Committee’s interior subcommittee.

‘So Ugly’

“Sequestration was supposed to be so ugly that we would never go there,” Simpson said in an interview. After “about a month or two,” he said, doing nothing about the cuts will be “difficult to justify.”

Simpson said lawmakers have “eliminated 50 some odd programs” in a bill that would finance the Interior Department.

“If they tell me to take $2 billion or $3 billion out of the Interior budget,” Congress may have to say “we are not going to have a Forest Service anymore,” Simpson said. “At some point you could squeeze all of these agencies so far, you might as not well have them.”

For now, lawmakers in each party describe the other as intransigent as they try to assign political blame before the cuts begin.

House Democratic Leader Nancy Pelosi of California protested the one-week recess while speaking to reporters yesterday in Washington.

“Sequestration equals job loss,” Pelosi said. “We should be working” to avert the cuts, she said.

One Republican

Republicans say Senate Democrats’ tax proposals, particularly the minimum tax on top earners, have previously drawn widespread Republican opposition. In April 2012, only one Republican, Maine’s Susan Collins, voted to advance the proposal when Republicans blocked it in the Senate.

The so-called Buffett Rule would impose the minimum tax rate on top earners, phased up to a 30 percent rate on those earning more than $2 million a year. The provision would raise $54 billion over 10 years by preventing those taxpayers from benefiting from lower rates on capital gains and dividends that reduce their effective tax rates.

Under the proposal, those taxpayers would still be able to deduct their charitable contributions. The Senate debated the idea in April 2012, and its 51-45 vote, almost entirely along party lines, was short of the 60 votes needed to advance the measure.

Republicans deride the Buffett Rule as a politically motivated gimmick. Democrats acknowledge the potential advantage of linking Republicans and billionaires.

Buffett Rule

At one point last year, when Democrats were being accused of choosing political proposals to raise revenue, Senator Charles Schumer of New York said that if party members wanted to be political, they would have used the Buffett Rule.

Julian Zelizer, a professor of history and public affairs at Princeton University in New Jersey, said both parties “can let the gridlock take the blame” for allowing the spending cuts to begin, “and then they can step in and fix some of it.”

“And then each party can find some things where they can look like heroes,” Zelizer said.

To contact the reporters on this story: Kathleen Hunter in Washington at khunter9@bloomberg.net; James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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