Tuesday, March 5, 2013

FDR, the Budget Control Act of 2011 and Pentagon Spending

In the summer of 1935, at the height of the Great Depression, President Franklin D. Roosevelt  signed the Revenue Act into law to pay for New Deal programs.  The Act raised tax rates from 59% to 75% on those Americans earning more than $5 million and raised corporate taxes from 13% to 15% on businesses earning over $50,000 annually.

In the summer of 2011, as President Obama’s $4 trillion ‘grand bargain’ with Speaker Boehner fell apart, the now-discredited Budget Control Act (BCA) was adopted on a bipartisan vote  to avoid an immediate economic default.   It was assumed that the sequestration portion of the Act which proposed mandatory cuts to military and domestic programs were so egregious that those reductions would never be allowed to occur.   The fact that Congress and the Administration were willing to take that gamble raises the inevitable question of whether the existing political structure is competent to run the country – especially in times of crisis.
Politically incoherent from the outset, the BCA which contained almost $1 trillion across-the-board cuts, brought the debt ceiling crisis to a conclusion while establishing a Joint Select Committee on Deficit Reduction (aka Super Committee) with twelve equally apportioned members of Congress.    If the forced negotiations failed to achieve a consensus on an additional $1.5 trillion cuts and increased tax revenue, then the BCA allowed a mandatory trigger of that amount to occur over the next ten years.   Of course, the Super Committee was doomed from the start – why would a dozen members of Congress  willingly commit political suicide by assuming  total responsibility  for determining the economic  future of world’s number one super-power.
As the  bipartisan finger-pointing and blame game continues, it is important to acknowledge that an enforced budget-cutting mechanism dubbed ‘sequestration’ originated with the Gramm Rudman Balanced Budget and Emergency Deficit Reduction Act of 1985.  At that time, Rudman referred to sequestration as ‘a bad idea whose time had come.”   Whether its current incarnation came from Jack Lew, current Treasury Secretary  or Gene Sperling, White House Economic Council Director  as Bob Woodward cites in Politics of Power (pg. 215) remains open to speculation.
Once the politically-generated ‘fiscal cliff’ stalled in January with modestly raised tax revenues while cutting unemployment benefits , the first sequestration $85 billion budget cut (coincidentally the same amount that the Fed Bank distributes monthly to the banks) kicked in on March 1st despite a White House list of potentially horrendous cuts to education, transit, health care, housing, infrastructure projects and other essential people programs. 
Meanwhile, as Republicans sputter in protest over a $45 billion cut to Pentagon spending which represents only a softening of the edges, there is every reason to believe that the reduction will be watered down  in the name of ‘national security’ in the next  Continuing Resolution.   Since even before the fiscal debacle of 2008, the  tactic of Republicans to undermine and destroy the credibility of the Federal government, only to turn around and point to the result of their own actions as proof of why there is a breakdown in the Federal government’s performance, has proven to be shrewdly successful.   
For their part, today’s  Democrats bear little resemblance to past Democrats who constructed  the country’s once-sacrosanct social safety net.    Erroneously assuming Republicans would resist any military cuts and be forced to negotiate, the White House seriously misread the tea leaves as the party of Thomas Jefferson backed themselves into a tight corner with little room to maneuver.   

At the February 12th Senate Armed Services Committee hearing on the potential impacts of sequestration on the Department of Defense  with all five Joint Chiefs of Staff (JCS) in attendance, Committee Chair Carl Levin (D-Mich) opened the hearing with one example of ‘devastating’ sequestration impacts:   the Army had requested  $36.6 billion for 2013 but will only receive $30.6 billion (same as 2012 budget) with  sequestration cutting an additional $6 billion.  Levin went on to inform that since the Army has already spent $ 16 billion for 2013 with only $8 billion remaining for fiscal year 2013.   With “unexpected high operational demands requiring $6 billion to be spent overseas,”  left the Army with only $2 billion for domestic operations and maintenance for the next six months  - which, Levin pointed out, was originally budgeted at $20 Million.
As Committee members, regardless of political affiliation, expressed their empathy with the military’s need to pull in its belt for the first time in over thirty years, there was little evidence of a vibrant two party system  – until  tea party favorite Sen.  Mike  Lee of Utah had the last word.   Citing former Senator Chuck Hagel’s December 2012 Financial Times interview, Hagel was asked about  Defense Secretary Leon Panetta’s quote that sequestration would be ‘disastrous’ to national defense.  Lee quoted Hagel as stating that Defense “in many ways has been bloated”, “they have gotten everything they wanted in the last ten years”, that the “waste and fraud has been astounding” and that “they have taken priorities, taken dollars out of State Department and other agencies and put them in Defense”.   
In conclusion, Lee invited each Joint Chief “down the line” to respond  whether they agreed with Hagel’s general characterization.   After a few nervous twitters, only Ashton Carter, deputy Secretary of Defense responded, woefully failing the straight face test, citing Secretary Gates’ efficiency initiative to reform and improve the acquisitions system, how management problems occurred when it was easy to reach for more money to solve technical problems, that habits had accumulated over decades  and that “we have accommodated a substantial budget adjustment relative to  a few years ago.”   
In his first term, Lee,  who has shown a populist streak on occasion, responded that Carter’s answer appeared “inconsistent” since “Hagel’s statement was made just recently - in December.”


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