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City Hall Tactics At The White House

White House staffers scrambled to arrange a visit today to the Florida training camps of the Yankees, Tigers, Red Sox and Orioles, so President Obama - flanked by baseball all-stars - can warn that the budget sequester will give every American League team a losing record this season.

Okay, I made that up. But for just a second or two, before you did the math, you might have believed me. We are conditioned to picture the president and his staff making such outlandish claims, after weeks of increasingly hysterical assertions about what it means to cut $85 billion in federal spending between now and the end of the fiscal year on Sept. 30.

Tuesday it was Attorney General Eric Holder’s turn. He went before the cameras to declare that as a result of the cuts that took effect today, “The American people are going to be less safe,” because of furloughs to FBI agents and other federal law enforcers. Prosecutors will have to close cases and let bad guys go free, Holder added. (But he did not mention bankers, from which I infer that the administration will use its last Justice Department dollar to try to put bankers behind bars.)

Last week Transportation Secretary Ray LaHood warned that the cuts will create longer security lines at major airports. Airlines will have to hold planes to wait for the delayed passengers, and the backups will ripple across the country the way they do every time big summer thunderstorms appear over places like Chicago’s O’Hare and New York’s LaGuardia airports, LaHood advised. Of course, big summer thunderstorms are a not-infrequent occurrence, but transportation secretaries are seldom in a hurry to assign responsibility to their agency and its antiquated systems for the resulting inconveniences.

Obama himself trotted out police, firefighters and emergency personnel to declare that using a “meat cleaver approach” to cutting the federal budget will cause communities across the country to lose critical safety workers. Acting on the principle that all politics is local, the White House released a state-by-state list of the woes that could befall the nation because of the sequester.

The administration’s tactics are familiar to anyone who has ever watched a budget fight at City Hall. The first thing any self-respecting mayor or council president does is warn that if more money is not soon found, the community will see its libraries closed, its teachers laid off and its police sitting behind desks because there is no fuel in the patrol cars. The list never seems to begin with a search for redundant City Hall workers or with putting contracts held by the mayor’s friends and supporters out for competitive bids.

So it goes in Washington these days. Neither Democrats nor Republicans like the automatic spending cuts that lopped about $43 billion from the defense budget this year, and a similar amount from discretionary domestic programs. Everyone agrees that there are much smarter ways to get substantial control over federal spending - though anything really significant would involve changes to entitlements like Social Security, Medicare and Medicaid, which are exempt from the sequester and which Obama and fellow Democrats want to spare as much as possible. Since the government also must honor the interest obligations on its massive debt, this leaves only a sliver of federal spending open to change, which therefore needs to be handled as thoughtfully as possible.

Nobody argues that the sequester, which was part of the mid-2011 deal to increase the federal debt ceiling, is thoughtful. But when House Republicans voted last year - twice - to give the president authority to rearrange the cuts, the Senate failed to act. Yesterday, a similar proposal in the Senate failed on a 62-38 vote. Only two of the Senate’s majority Democrats supported it, and nine Republicans defected on grounds that it would give the President too much power. But enough Republicans are willing to let the chief executive act like an executive, and arrange the budget to his liking, that Obama could easily protect some of his top priorities.

Obama and the Democrats are unwilling to set priorities, or at least not before they have satisfied themselves that they have squeezed every possible nickel of tax increases out of congressional Republicans who oppose them. (Senate Democrats mustered 51 votes yesterday for a plan to raise taxes on households with more than $5 million of income yesterday, but the measure needed 60 votes to pass.) Republicans, having already gone along with $600 billion in tax increases as part of the fiscal cliff deal in January, have decided to say “no mas.” Besides appealing to the GOP base, the phrase might just catch on with Hispanic voters, with whom the Republicans need all the help they can get.

Financial markets have been remarkably sanguine about the sequester. This is pretty good evidence that the administration’s promises of near-term economic damage are overblown. The cuts may be stupid, but so is running up an additional $1 trillion in federal debt every year with no end in sight.

We are probably in for at least several more weeks of this wrangling. The next critical date is March 27, when the government’s spending authority will expire unless Congress acts. Gridlock would mean a partial government shutdown, with the emphasis on “partial.” House Republicans will probably soon move to continue the budget at its current, sequestered level, and to give the president authority to reallocate funds to mitigate the worst effects. Democrats must decide whether they can reject the GOP approach without taking too much blame for what would follow if the spending authority lapses.

Likewise, the president has to decide whether it is in his interest to actually let security lines at the airport extend to the drop-off curb.

After all, mayors may threaten to turn off all the street lights, but they seldom follow through. They know who their constituents will blame when everything goes dark.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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