WASHINGTON -- As members of President Barack Obama's economic team surveyed the fiscal landscape following the 2012 election, they were haunted by spending cuts set to take effect at the end of the year.
Sequestration was the rare public policy passed for purposes of being avoided. The cuts were designed to be so onerous (a 7.3 percent reduction in discretionary defense spending, a 5.1 percent reduction in non-defense spending, and a 2 percent reduction in Medicare) that lawmakers would hustle to replace them.
But the presidential aides didn't hustle. Instead, they stalled in finding a replacement policy. And as the days drew closer to the sequestration deadline, the angst level rose inside the West Wing. One senior administration official, who helped in planning for the automatic cuts, said that the impact was far more severe than most appreciated. The possibility of a short-term economic recession was discussed, said the official, who spoke on the condition of not being quoted.
"Any economic uncertainty that comes from the mere possibility of the sequester is bad," said a different senior administration official. "Going through it is much worse."
Those concerns animated the White House role in end-of-the-year negotiations with Congress that averted across-the-board tax hikes and delayed, for two months, the mandatory spending cuts.
The White House concerns also emboldened Republicans, showing them the administration's potential vulnerability. With lawmakers once again gearing up for a debate over sequestration, House Republicans are calling Obama's bluff, adopting a posture of nonchalance about the prospect of the cuts being triggered.
The tactic has its risks. A report last week from the Bureau of Economic Analysis blamed massive reductions in defense spending for much of the U.S. economy's fourth quarter stagnation. It's also having a political impact. On Tuesday, Obama made an unexpected push for a short-term extension of the sequestration deadline in hopes that it would give Congress more time to pass a budget.
"Congress is already working towards a budget that would permanently replace the sequester," Obama said. "At the very least, we should give them the chance to come up with this budget instead of making indiscriminate cuts now that will cost us jobs and significantly slow down our recovery."
The president proposes a mix of ways to increase revenue and cut spending to buy a few month's time. Obama would even entertain reforming entitlement programs, including Social Security and Medicare, the White House said. An administration official later clarified that means revisiting the December 2012 discussions with House Speaker John Boehner (R-Ohio), rather than the July 2011 talks, which means far-reaching Medicare reforms remain off the table.
There were no immediate takers.
“President Obama first proposed the sequester and insisted it become law," said Boehner. "Republicans have twice voted to replace these arbitrary cuts with common-sense cuts and reforms that protect our national defense. We believe there is a better way to reduce the deficit, but Americans do not support sacrificing real spending cuts for more tax hikes.”
With sequestration on the horizon, conservatives believe they have political leverage. While the replacement bills that Boehner referenced would never pass the Democratic-run Senate (let alone get the signature of the president) they provide the GOP with a serviceable talking point. And since Congress just passed more than $600 billion in tax revenue increases as part of the fiscal cliff deal, the framing of the debt-reduction conversation has shifted back toward cuts and entitlement reforms, where the GOP is comfortable. Most importantly, the economic ripple effects of sequestration make Republicans less nervous than Democrats.
"They are not bluffing because bluffing implies having a strategy," said one senior Obama administration official. The official nevertheless took a shot at pinpointing GOP thinking. "The only reason it would happen is if Republicans choose for it to happen, and the reason they would choose it is because they are trying to use it as leverage to secure more cuts."
Republicans don't dispute that. They've offered to replace defense cuts with reductions in social programs. But, as they hold out for a deal along those lines, they run a risk. While GOP leadership ranks may seem calm about sequestration, others in the party have trouble suppressing their fears.
"I think any alternative is better than allowing the sequester to take effect," said Rep. Tom Rooney (R-Fla.) "I don't know what's happened with some people in our conference recently, but I'm one of the very few people I think that would agree that -- if you could say, 'Would you rather hollow out the Pentagon or increase taxes?' I would support the latter to make sure that we didn't lose our capability to maintain our superpower status.
"Sequestration was never going to happen, because nobody would allow that much in defense cuts," Rooney added. "So we went along with it. We believed that the super committee would come to an agreement, because surely they would not hollow out our military. Well, guess what? They didn't come to an agreement, here we are, and now all of a sudden it's sequestration is kind of okay on our side? No."
The divergent strands of sequestration thinking are strongest among lawmakers in Virginia, a state that would be hard hit.
Paul Logan, a spokesman for Gov. Bob McDonnell (R-Va.) told The Huffington Post that McDonnell was "extremely concerned" about Washington’s failure head off the automatic cuts. McDonnell has "spoken repeatedly with members of Virginia’s congressional delegation about this issue, and communicated to the president about the potential fallout in Virginia should the sequester occur," Logan said.
House Majority Leader Eric Cantor (R-Va.) is one of those members of Congress. Because of his leadership position, he has had to walk a fine line on sequestration. Asked for Cantor's position, spokesman Doug Heye noted that the House had already acted to replace the cuts "while the Senate and the Obama administration have sat idly by." Does Cantor want to avoid the defense cuts? "We've talked about replacement cuts all along," replied Heye.
Other Virginians are resorting to more dire descriptions.
Democratic Rep. Jim Moran's district in Northern Virginia would be hit hard by sequestration, he said, pointing to the military contractors and industries tied to federal funding. For a while, he said he assumed that Congress would never let the cuts happen. After all, the defense industry strategically tries to have operations in all districts so that every member would feel the pressure to keep funding levels up. But now, he's resigned to inaction.
"Lately I have to tell constituents that I think the sequester is probably going to go through," Moran told The Huffington Post. "The only hope right now is that it goes through and the damage is severe enough that the Congress reverses itself after it starts to be implemented.
"There is a change in attitude within the Republican Party to be willing to cut defense," Moran continued. "And I'm a little surprised myself. But I think that some of the new members are not as protective of defense spending as others have been. They probably haven't been representing their district long enough to realize how important it is in their district or how much defense spending exists in their district.
"I think this is a Republican Party that [chairman of the House Armed Services Committee] Buck McKeon (R-Calif.) doesn't understand."
McKeon's office did not return a request for comment.
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