At this point, odds are low for a deal to avert the sequester. Republicans want an agreement to replace the planned across-the-board spending cuts—which include cuts to defense spending—with ones that target social spending and entitlements. President Obama is willing to compromise on spending cuts, but insists on new revenues. "Balanced" deficit reduction—a key part of his reelection platform—is still a priority for the administration, and it commands wide support from the public.
It's unclear what happens next, but the administration is attempting to build support for its position with a new lobbying campaign, aimed at the states. Just last night, the White House released detailed descriptions of how the sequester would affect each state. If it hits, says the administration, 70,000 children would lose access to Head Start, 2,100 fewer food inspections could occur, up to 373,000 mentally ill adults and children would go untreated, and small businesses may see $900 million in reduced loan guarantees. What's more, the FBI could lose over 1,000 federal agents, customs and border patrol would lose employees, and the Federal Aviation Administration would have to furlough most of its workers (the same goes for the Transportation security Administration).
In a state like Virginia—where federal spending is important to the local economy–sequester cuts would be hugely devastating. According to the White House, sequester cuts would cost the state $28 million in education spending, reduce environmental funding by $4 million, and furlough 90,000 of the state's federal workers, reducing gross pay by around $648.4 million in total.
Given the decent case for a "balanced" plan, this should be easy to avoid. Between the Great Recession and the low tax rates of the previous decade, the federal government has seen its revenues dip to historic lows. Even if you see spending as a core problem, there's no way to cut the budget into balance, save a massive reduction in the size and scope of government. Given the degree to which the public supports the social safety net, that's just not feasible (or desirable, for that matter). What's more—in the absence of new fiscal stimulus—it's important to protect the recovery from serious harm. Immediate and medium-term spending cuts—as seen in the sequester and the GOP's proposed alternative to the sequester—would run the economy aground, reducing GDP by 40 percent, and costing 700,000 jobs over the course of the year. A plan that delays spending cuts is far, far better for the economy.
Obama's proposal would raise revenue by closing loopholes and exemptions for higher income earners. Spending cuts would come in the form of lower Medicare payments on the provider side—less cash for doctors, hospitals, and manufacturers—smaller deferred cuts to various federal functions, and changes to how Medicare and Social Security distribute benefits (means-testing the former, changing the benefit calculation for the latter).
There's nothing here for liberals to be happy about, but it is—at the least—an attempt to engage with conservative concerns and offer some kind of compromise. Naturally, Republicans have rejected it.
It's not hard to predict the political consequences of sequester-driven dysfunction. Less effective government will provide talking points against new programs, and inevitably higher deficits (a result of the sequester-driven economic slowdown) will give Republicans space to argue for even more cuts, prompting a destructive cycle of austerity that will, in fact, leave us looking like Europe.