US business groups and chief executives are lobbying less aggressively to avert the looming budget sequestration than they have during past fiscal stand-offs, judging the impact on the economy and financial markets to be less severe.
John Engler, president of the Business Roundtable, which represents America’s largest companies, said the automatic spending cuts would do minimal harm, compared with the large tax hikes and possible default on US debt threatened during other big budgetary crises of the past two years.
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“[In those instances] there was great concern that it was going to damage the US credit rating or that there would be chaos in the financial markets – that’s clearly not the case with sequestration,” Mr Engler told the Financial Times, adding: “I think it’s considered de minimus by most people,” he added.
Economists have estimated that the sequestration cuts – worth $85bn for the remainder of the fiscal year, which ends in September, and $1.2tn over a decade – could cut US growth by 0.3 to 0.6 percentage points – and keep the unemployment rate close to 8 per cent.
Mr Engler’s comments are in stark contrast to theheated rhetoric and dire warnings about the cuts from the White House, both Democratic and Republican congressional leaders, some government agencies, and other outside groups. Both leading US political parties say they want to avoid the across-the-board cuts, but cannot agree on ways to delay or replace them.
Lately they have mostly resorted to blaming each other for the impasse, though President Barack Obama did place calls to John Boehner, the Republican speaker in the House of Representatives, and Mitch McConnell, the top Republican in the Senate, on Thursday. Jay Carney, the White House spokesman, said they had “good conversations”.
Economists have been more measured. “The macroeconomic impact of the sequestration is not catastrophic,” said economists at Macroeconomic Advisers in a note. “Nevertheless, the indiscriminate fiscal restraint would come on the heels of tax increases in the first quarter that total nearly $200bn, with the economy still struggling to overcome the legacy of the great recession,” they added.
During the debt ceiling crisis of August 2011, and the fiscal cliff stalemate of December 2012, business groups and individual CEOs embarked on big lobbying pushes to plead for Congress and the White House to reach eleventh-hour agreements – including letters to lawmakers, public interviews and meetings in Washington. But that urgency has waned in advance of the sequestration, with the exception of defence groups and some other big contractors who would be adversely affected by the sharp cuts to Pentagon spending.
“If this were the debt ceiling you’d see a lot of letters,” Mr Engler said. He said attention was turning to the March 27 deadline when funding for the government expires, threatening a partial shutdown of federal operations in the absence of a new budget law. The hope in Washington is that this would force a fix to sequestration, though it is unclear whether it will be sufficient to yield political compromise.
“I think a lot of people are less nervous about the sequestration than they would be about a government shutdown or not handling the debt limits” says Tom O’Donnell, a former Democratic congressional aide at the Gephardt Group, a lobbying firm. “Of the three cliffs – if you will – I think this is the least problematic.”
Mr Engler said estimates of the effect on the economy were only “guesses” and US companies had “different approaches and thoughts about how to grapple with this”, depending on their industry. He contrasted the perspectives of healthcare and defence groups.
Under sequestration, Medicare, the US government health plan for the elderly, would be hit by cuts capped at 2 per cent, hitting providers to some extent, but not a huge degree. “You’ve got some in sectors where there are no cuts or limited to 2 per cent, like Medicare – and so they’re saying ‘geez that’s better than some kind of wide open debate where we might get cut more than that’.”
Oil companies may also prefer sequestration cuts to Democratic alternatives that would scrap some of their tax breaks. But Mr Engler said those groups who work with the Pentagon were much more worried: “If you’re in the defence sector you say ‘wait a minute that’s not so good for us’.”
Earlier this month, David Cote, the chief executive of Honeywell and a leading corporate spokesman on US fiscal policy, appeared resigned to the fact that sequestration would have to happen. “You could argue that the reduction would make more sense if we did it thoughtfully and spent a lot of time on it. I’m not sure that’s a real option, though. The options seem to be let it happen or take it away,” Mr Cote said. “So, yeah, there’s some impact but at some point we have to start working to get our debt under control and if this is the only rational step they could seem to take to do it, then they ought to do it.”
In terms of putting pressure on Congress to reach a deal, the BRT – and Mr Cote – played a pivotal role in trying to cajole Republicans into accepting the need for higher tax rates during the December fiscal cliff stand-off. But Mr Engler, a former Republican governor of Michigan, suggested he was no longer expecting his party to cave in on taxes. “My view is they got the revenue at the end of last year,” he said.
In a statement to the FT, the US Chamber of Commerce, the other big business lobbying group in Washington, said it “remains vocal” on sequestration. “ We have long stated that the sequester is bad public policy and should be replaced with prioritised spending cuts,” a spokeswoman said, adding : “Additionally, we have continued to adamantly oppose tax hikes to replace spending cuts, and we will continue that message when the Senate returns next week.”
Sequestration poll: Republicans to be blamed most
By: Kevin Robillard  | |
| Nearly half of Americans would blame Republicans if $1.2 trillion in spending cuts go into effect on March 1, according to a poll released Wednesday. Only 31 percent would blame President Barack Obama, according to the Pew Research Center/USA Today poll, while 49 percent would blame the congressional GOP. Eleven percent would blame both. The spending cuts — known as the sequester in Washington-speak — would cut equally from defense and domestic programs across the board. While most of Washington agrees the consequences of the sequester could be disastrous — economists have said it could cause another recession and military leaders have said it would harm national security — efforts to avert it are at a standstill. Obama has said revenue from closing tax loopholes should be included in a deal, while the GOP wants it to consist exclusively of spending slashes. Republicans get most of the blame despite an all-hands-on-deck effort by the GOP to blame the White House for the sequester, frequently pointing out the idea originated in the executive branch. Most congressional Republicans voted for the sequester as part of 2011’s Budget Control Act. If Congress and the White House can’t reach a deal to replace the sequester, 49 percent of Americans want them to delay the spending cuts — originally scheduled to happen on Jan. 1 — even further. Forty percent said they should allow the cuts to happen. While Americans might be willing to delay the spending cuts, they do want a deficit-reduction deal this year. Seven in 10 said it was “essential” for a deficit deal this year, compared with only 51 percent who said the same about immigration and 46 percent who said so about gun legislation. Republicans might have a small leg up in negotiating a deal. Seventy-six percent said a combination of spending cuts and tax increases should be used to reduce the deficit. But 54 percent said the combination should lean toward cuts. Only 16 percent said it should rely mostly on tax hikes. The poll of 1,504 adults was conducted from Feb. 13 to Feb. 18. It has a margin of error of plus or minus 2.9 percentage points. | |
| © 2013 POLITICO LLC http://www.politico.com/story/2013/02/sequestration-poll-republicans-to-be-blamed-most-87914.html?wpisrc=nl_wonk |
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