Here comes the sequester. I think political analyst Dan Clifton of Strategas Research is on point:
Although spending is cut heavily on the Defense industry and the cuts are across the board, Republicans seem intent on letting the sequester go through if Democrats are not willing to engage in entitlement reform given that the GOP believes spending should be more in line with its historical average.
Here’s your trouble: The GOP would love to replace those deep defense cuts with entitlement reform. Letting them all happen would bring the defense budget to historic lows, around 2.5% of GDP. Some context: Right before 9-11, the “peace divided” brought defense spending down to 3%. Moreover, defense spending accounted for, on average, a 7% share of GDP from 1948 to 2000.
But the White House will surely demand more tax increases to replace any spending reductions. Indeed, even though the sequester cuts would bring overall spending down closer to is historical norms, the long-term debt trajectory doesn’t change.