Gather ’round, children, and I will tell you a story about the defense budget…
There are two lawmakers named John McCain and Mac Thornberry who, along with many other nice men in the government, warn that our safety is threatened by an evil giant called “sequester.” You will not be safe, they say, until the giant is slain. “There is no national security justification for sequestration,” they tell us.
And they are not the only people warning us of the scary giant and his evil ways. Ashton Carter, when defense secretary nominee, told the same horror story in February: “Sequester is risky to our defense; it introduces turbulence and uncertainty that are wasteful; and it conveys a misleadingly diminished picture of our power in the eyes of friends and foes alike.”
Oh, that evil “sequester” monster — what a horror he is! He is responsible for all kinds of terrible things, like those “meat ax” cuts that then-Defense Secretary Leon Panetta talked about in 2013 that would put all Americans’ security at risk.
But before we become too fearful of this evil sequester giant, there’s another story, a different story that has a very different ending. It’s not about sequester, but it is about the caps Congress imposed on the budget in 2011 — the disciplined, orderly set of legislated targets that domestic and defense budgets must meet over the next 10 years.
Sequester, you see, is a mechanism that cuts budgets if they exceed the Budget Control Act caps, passed in 2011. So put down that Pentagon/McCain/Thornberry comic book about sequester, banish the sequester bogeyman to the closet, and listen to the real tale. Because the caps story is a good story: It’s about budget discipline, making choices, and getting the deficits down. And those are all good things.
We all have to live with allowances. This is not the first time the Congress and the White House have had to live with lids on spending. Back in the good old days when those nasty Republicans and pesky Democrats still talked to each other, back in the dark, dark days of deficits in the hundreds of billions (yes, that much) of dollars, in the 1980s, a few brave souls thought there must be a way to restrain the urge to just spend more, the urge for all lawmakers and presidents to dip their hands into the cookie jar and just spend money.
And so they passed two laws, five years apart, laws that became the laws of the land. One of them, passed in 1985, was sponsored by two Republicans (Warren Rudman and Phil Gramm) and, believe it or not, a Democrat (Ernest Hollings), all three of whom are gone from Capitol Hill now. The Gramm-Rudman-Hollings act set limits, which they called “caps,” on how high discretionary spending could be. (Oh, sorry, that’s a complicated term. It means the money Congress approves — appropriates — annually to keep agencies running and doing their things.) And if spending went over those caps, “sequester” came out of the fiscal closet and took away the money that was over the caps.
Then, five years later, when Congress had still not behaved — which was to get the money going out (spending) in line with the money coming in (revenues) — the Republicans (including the president) and the Democrats got together (yes, again) and agreed on the Budget Enforcement Act, which set a new, long-term set of caps that everybody could live with.
So from 1990 to 2002, everybody in Washington lived under the caps. And they actually worked; federal spending slowed down. Between the agreement in 1990 (which may have cost the president, W’s dad, George H.W. Bush, a second term because it led to some tax increases and he had promised “no new taxes”) and 2002, courtesy of the caps and a strong economic recovery, the country’s federal budget went from a $269 billion deficit (in 1991) to a $236 billion surplus.
In the White House, working with Panetta, we decided to try to cut annual deficits in half between 1994 and 1997. And we overachieved. By 1998, more money was coming in than was going out. We were good, the Congress was good, and we were all very lucky. (Now don’t worry about that luck thing. Branch Rickey, who was a baseball guy, once said, “Luck is the residue of design.” Smart man.)
Sequester rarely came out of the closet, except to peep a couple of times. He was there, hiding in the wings as an incentive to behave. But he was not the main show; the main feature was the caps, those eternal limits on spending. And they had a lot of support; they were real limits.
We had to all make sure what actually was spent in a given year (the propeller-head budget guys call this “outlays”) didn’t go over the caps. (There’s another part to this story, for another time, where we actually told anybody that if they wanted to let more people get government benefits or we wanted to reduce taxes, we had to pay for that by lowering benefits to other people or raising money by increasing taxes on somebody else – it’s called “paygo.”) But once there was more money coming in than was going out, Congress and the new President Bush decided, in 2001, that the caps could die, they could pass a prescription drug program, cut the money coming in by reducing taxes, go to a big war, and let the banks trigger a recession.
So, now, here we are again. Thanks to W pushing down taxes (a man named Arthur Laffer thought pushing down taxes would actually make the economy grow and make more money than ever come in, he was just wrong, silly man), and the banks fiddling with worthless loans for houses (that’s another story for another bedtime), revenues took a hike to Florida – went south.
And silly old George decided to overthrow a couple of governments overseas which meant he had to buy a lot more soldiers and bombs and things, raising military spending above anyone’s guess. With all of that we just went back to more spending going out than money coming in. And when poor Barack Obama got to the big White House, bailing out those big banks and preventing a depression (a story for when you’re older) became important, so we spent even more.
So things got out of hand again, and this time there was a lot more money going out than there was coming in — over a trillion dollars a year for four years. So Congress and the president agreed (something that happens a lot less often now; it has to do with the water and tea parties) that maybe, just maybe, we needed to return to those caps. And so they did.
In 2011, Congress decided caps might be a good idea, all over again. And they passed a law that set new caps on discretionary budgets. But, some of the people who had gotten used to spending a lot didn’t like that. Especially the five-siders (Pentagon types) and their supporters in the Congress, who wanted to keep the defense budget really high.
They had a lot of money – thanks to those wars Bush started their budget had doubled since 2001. But caps? Oh, no, they said, let’s not go back to that. Except a lot of other people thought caps were a good idea, because they made everyone plan carefully, decide on what was important, and not do the other stuff that wasn’t so important.
So the five-siders and their friends in Congress (with ample support from the manufacturers of military toys) tried to figure out how to frighten the rest of us into providing more money than the caps would allow. Even if that meant taking funding from other parts of discretionary spending; by 2014, the promoters of higher defense budgets did not care what happened to the rest of the budget.
The irony is that these advocates for more already had more, a lot more than the caps said.The irony is that these advocates for more already had more, a lot more than the caps said. They had a special purse, called the “OCO wallet.” The overseas contingency operations (OCO) wallet would open every year and be magically filled with funds that did not count against the caps. The wallet opened up every time the five-siders said the magic words: “brave men and women in combat.” Even when the brave men and women came home, if they just said the words, the wallet kept filling up.
But it wasn’t enough. They wanted more, and just saying “more” wasn’t going to get the job done. Many people like the caps, cause, even with the OCO wallet, they still provide some good budget discipline that helps keep things under some kind of control.
So the five-siders wrote a new, scarier story, one that put the caps in the closet, and brought out the sequester bogeyman. Instead of calling the defense budget story a demand for eliminating “the Caps,” they decided to make it a story about eliminating “sequester.”
They figured that if they yelled loud and long enough about ending “sequester,” everyone would quiver in fear and rush to end the caps, because they thought the caps and sequester were the same thing. And they even had a back story to go with the word, because in 2013, sequester did come out of the closet, when the budget went over the caps, and it took the extra money away, just like the law said it should.
(What they didn’t tell you, because that would make the story less scary, is that thanks to the OCO wallet, a lot of moving money around, and some spare change they had lying around (called unobligated balances, never mind…), they got away from the boogey man virtually unharmed in 2013
The real story, you see, is about wanting more money than the caps allow; it is not about automatic cuts. As long as the total for the defense budget stays at the cap level, the Pentagon can plan the budget any way they want. The president has gone along with the Pentagon for the last couple of years; this year the Pentagon wants — wants $34 billion more than the caps would allow. And their friends in Congress want $77 billion above those pesky caps.
So they plastered the word “sequester” everywhere. But here is the funny part: if the Pentagon is good, and makes healthy, disciplined choices, and sets priorities, they don’t go over the caps and there isn’t any boogey man. I will tell you another time the story about how the five-siders could actually do the things they want to do and still live under the caps, yes, even without the OCO wallet.
But for right now, it is important to know that “sequester” and “ending sequester” are the unwarranted fear-inspiring versions of the defense budget story. If the five-siders can call what they want “killing the boogey man” instead of “killing those popular caps” maybe they won’t have any more limits on what they can spend. If you still think the story is about sequester, just ask the Pentagon if they would be willing to live within the budget caps if, by magic, the sequester provision was removed from the law. You can bet not.
Oh, such a sad story of deceit and mystery. Budget discipline, making choices, deciding what is important, that’s life. But life is too hard. So let’s transform that real life necessity into the boogey man, and maybe the underlying budget discipline will go away.
Maybe it is too early for bedtime; you should be awake for this one.