To Stave Off Sequester, Obama Can’t Ignore Entitlements

Tax increases alone won’t allow the president to protect “critical investments.”

President Barack Obama meets with senior advisors in the Oval Office of the White House in Washington DC, December 30, 2012
President Barack Obama meets with senior advisors in the Oval Office of the White House in Washington DC, December 30, 2012 (White House/Pete Souza)

Lawmakers in the United States must once again seek to stave off a budget crisis. Unless they find a compromise before Friday, $85 billion in government spending will automatically be cut from defense and domestic programs.

According to President Barack Obama, the cuts will weaken the nation’s military readiness. “And it will weaken the basic services that the American people depend on every single day.”

Speaking at a shipbuilding facility in Newport News, Virginia on Tuesday, the president, who was elected to a second term in November of last year, argued, “Instead of cutting out the government spending we don’t need — wasteful programs that don’t work, special interest tax loopholes and tax breaks — what the sequester,” as the process of automatic spending cuts is known, “does is it uses a meat cleaver approach to gut critical investments in things like education and national security and lifesaving medical research.”

The sequester is the result of the Budget Control Act that President Obama signed into law in August 2011. It threatened automatic spending reductions, split equally between domestic programs that Democrats seek to protect and defense which the Republicans are reluctant to cut, unless lawmakers from both parties managed to identify at least $1.5 trillion in savings for a period of ten years.

Such a compromise proved elusive and the sequester was meant to go into effect in January. A short-term measure postponed the cuts until March and simultaneously raised taxes on the wealthiest Americans. The highest income tax bracket was increased from 35 to 39.6 percent. The capital gains tax was raised from 15 to 20 percent.

President Obama campaigned on higher taxes for the rich but seeks additional changes in the tax code as part of a comprehensive budget plan to replace the sequester. Republicans, who are in the majority in the House of Representatives, reject further tax increases and insist that the Democrat finally accept reforms to entitlements that account for almost 60 percent of federal spending.

The $85 billion in cuts that will likely go into effect on Friday do not affect the whole budget. Mandatory spending commitments for social insurance programs like Medicaid, which pays health care for low-income Americans, and Medicare, which provides health care to seniors, are unaffected. Yet these programs are increasingly crowding out what the president describes as “critical investments” in education, defense and infrastructure.

Including food stamps, Supplemental Security Income and unemployment insurance, welfare already accounts for more than two-thirds of spending while the federal government borrows almost one dollar for every three it spends. Obama has run deficits in excess of $1 trillion throughout his first term in office. This year’s budget necessitates more than $900 billion in borrowing.

Republicans have proposed changes in Medicaid and Medicare that would make the programs sustainable in the long term and so reduce deficit spending. Democrats believe that such reforms, which include cuts and private-sector competition, would undermine the “bedrock” promise of social insurance. President Obama said in his inaugural address last month, “We reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future.”

As a consequence of his unwillingness to choose between keeping social insurance programs in their present form and spending on education, infrastructure and research, the national debt has grown nearly $6 trillion since he became president.

Closing tax loopholes and cutting “wasteful programs” won’t make a dent in the deficit. Nor will raising taxes on millionaires and billionaires. If the president doesn’t want to “gut” investments that he believes are necessary to build the nation’s future, he will have to accept entitlement reform.