U.S. Fiscal Future Likely Hinges on Public Reaction to Sequester

Impact on the economy, government services and programs could become evident within weeks.

Don’t expect Congress and President Obama to reach agreement on how to turn off the sequester’s $85 billion in across-the-board federal spending cuts before they kick in Friday.

No deal will occur by then, say senior lawmakers and aides, even if congressional leaders and the White House continue to express a desire for one. “Hope springs eternal,” House Speaker John Boehner quipped to reporters on Monday.

Rather, the real drama will rest now on the public’s reaction to those cuts and how that might impact negotiations in coming weeks over the still-looming debt-ceiling crisis, funding for the government beyond March, and whether a way can be found to preempt—or at least better carry out—the sequester cuts.

How will this all play out? The impasse’s next milepost that may provide a glimpse of the strategies ahead could come next week, when House Republicans, led by Boehner and Appropriations Chairman Harold Rogers of Kentucky, are expected to bring to the floor a bill to extend government funding through Sept. 30, the end of the fiscal year. (The current stop-gap measure expires March 27).

Technically, the $85 billion in cuts set to begin Friday—hitting military and domestic discretionary spending equally—would be spread out over the remaining seven months of the current fiscal year. But the impacts on the economy, government services, and programs could become evident within weeks, and hundreds of thousands of federal workers could face furloughs in mid-April.

Rogers’s bill to extend funding for government through Sept. 30 could be a vehicle to at least allow more flexibility, for now, in how some of these cuts are carried out. Rogers has indicated that his bill is to be subject to the sequester. That means, if the sequester gets turned off, his bill would hold fiscal 2013 spending at $1.043 trillion. If not, it would reflect that the year’s spending cannot exceed about $976 billion.

But in a hint of where Republicans might be headed, Rogers also has said the bill would be structured in a way that would allow some flexibility or shifting within defense and veterans spending, while still adhering to the across-the-board approach to the cuts.

Of course, such an approach would ultimately have to get the support of the Democrats who control the Senate, some of whom would likely seek similar flexibility for other spending areas. And neither side may want to risk a government shutdown with another battle over spending.

It is perhaps more likely that the fate of the sequester cuts—for which most Republicans and Democrats have expressed disdain -- may be tied to the upcoming fight over increasing the nation’s ability to continue borrowing, and perhaps a larger “grand bargain” to address the nation’s debt. A measure approved in January put off a debt-ceiling decision until May 19, and some Republicans have said they are willing to consider allowing the nation to default unless deeper budget cuts are enacted. The Treasury will be able to keep meeting the nation’s spending obligations through at least the end of July, analysts say.

Against this backdrop, both parties will be gauging the public reaction to the sequester cuts set to begin on Friday. Groups on all sides of the debate plan to highlight the effects of the cuts once they are officially in place, in an effort to sway public opinion. Obama and Democrats may be evaluating the reaction with an eye on whether a significant public outcry might work to their benefit as they press to replace some cuts with revenue from sources such as levying higher taxes on millionaires, reducing farm subsidies, and closing tax loopholes for oil and gas companies.

If the sequester is met with a shrug, Republicans could use a lack of significant public anger to press Obama and Democrats for still more concessions on the spending they see as a driver of the federal debt. Whichever way it goes, the sequester is set to start soon, and the public’s reaction to the cuts will likely set the stage for what lies ahead.

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