In another dire impact assessment of the more than $1 trillion of automatic cuts in defense and domestic programs, the Bipartisan Policy Center warned on Thursday that the deep savings would greatly add to the country’s economic woes by slowing growth and wiping out more than a million jobs – without putting a dent in the federal debt.
The sequestration cuts next year alone would amount to a 15 percent reduction in almost every defense program and project – much deeper savings than previous estimates – and force layoffs by defense contractors and their suppliers. Domestic programs could come in for similar reductions, although Medicare, Medicaid and Social Security – the main drivers of spending – would be off limits to cuts.
The net effect of these mostly arbitrary and abrupt spending cuts would be to drive down the Gross Domestic Product by roughly a half a percentage point and put more than one million Americans out of work over the next two years, according to the study. Federal workers ranging from FBI and border patrol agents to civilian Defense Department employees to government physicians and teachers would face unemployment in early January unless Congress decides to cancel or revise the sequestration.
“At a time when the military is reorienting its mission to new strategic priorities and seeking to modernize its forces as two major land wars wind down in Iraq and Afghanistan, these across-the-board cuts will make it significantly more difficult to ensure readiness, procure new weapons systems and invest in new technology to meet emerging threats,” the report said.
“You are going to put [the government] through holy hell, but accomplish very little,” said former Sen. Pete V. Domenici, R-N.M., a member of a Bipartisan Policy center task force that is assessing the impact of the sequestration. “They wrote a bill that is an absolute fiasco.”
The sequester, mandated by last summer’s major budget and debt ceiling deal struck by the Obama administration and Congress, is a big factor in why the nation is headed for a year-end “fiscal cliff” that economists, lawmakers and public policy experts fear could send the fragile economy back into a tail spin.
AN $8 BILLION PROBLEM
Short of intervention by the administration and Congress, a cumulative total of $8 billion of spending cuts and tax increases will kick in by the first of next year. The scheduled cuts in defense and domestic programs would come on top of the expiration of billions of dollars worth of Bush-era corporate and individual tax cuts and other tax breaks coming up for reauthorization.
Ironically, the automatic cuts authorized last summer by President Obama and Congress could end up costing the government more in lost income tax revenue, extended unemployment insurance and other economic recovery programs than it can hope to save.
Dan Glickman, a former Democratic House member and agriculture secretary who also serves on the task force, said that Congress and the administration are gambling that the sequestration doesn’t push a “shaky” economy back into the ditch. During a briefing yesterday, Glickman warned that the automatic spending cuts would act as a “reverse stimulus program” that might renew fears of another recession. “Rather than boosting the economy, it’s de-boosting the economy,” Glickman said. “It’s playing with fire.”
The Budget Control Act, signed into law by Obama last summer to end a bitter controversy with Republicans over raising the federal debt ceiling, requires $1.2 trillion in automatic cuts equally divided between defense and domestic programs over the next decade, with the first $109 billion due to take effect on January 2. Those automatic cuts became necessary after a joint House-Senate “super committee” was unable to reach agreement on a package of spending cuts and revenue increases to help bring down the deficit by more than a trillion dollars in the coming decade.
NATIONAL SECURITY RISK?
But almost immediately, the Defense Department and its Republican and Democratic allies on Capitol Hill complained that the deep cuts – coming on top of earlier reductions approved by the administration – would endanger national security by creating a “hollow” military force. If the sequester goes through, defense budget authority in fiscal 2013 will be $100 billion lower than the president’s $550 billion fiscal 2012 request, according to the report.
The House last month voted 218 to 199 to approve a GOP plan that would cancel the defense cuts while greatly increasing the savings in domestic programs – including slashing spending for food stamps, Medicaid and implementing the administration’s embattled health care reform program.
Democrats and the White House strongly opposed the plan to shift all the burden of spending cuts to domestic programs, forcing reductions in social programs for the most vulnerable Americans while refusing to consider raising taxes on wealthy people. House Democratic Leader Nancy Pelosi of California said the GOP plan “clearly defines the values and vision of the Democratic Party and the Republican Party.”
Budget policy experts including Domenici and Glickman are urging Congress to begin work now on a major budget deal along the lines of the recommendations of the Bowles-Simpson presidential fiscal commission and other groups to tackle the deficit with a mix of spending cuts, entitlement reforms and tax increases.
DEBT CEILING II, THE SEQUEL
House Speaker John Boehner, R-Ohio, has called for the administration and congressional leaders to begin discussions now on additional savings as a precondition for raising the debt ceiling again, while insisting that the Bush era tax cuts be extended at least temporarily for all Americans.
President Obama has endorsed extending tax cuts for the middle class, but said he would oppose extending the tax cuts for households earning more than $250,000 a year. That is why on Wednesday, Boehner and other GOP leaders pounced on comments from former President Bill Clinton and former Obama Treasury Secretary Lawrence H. Summers who suggested the tax cuts should be temporarily extended for all Americans, including the very rich. Under pressure from the White House and congressional Democratic leaders, Summers and Clinton later clarified their televised remarks to say they agreed with the president.
GOP leaders would not let Clinton and Summers off the hook and argued that there were strong economic reasons for extending the tax cuts into the coming year. For example, Senate Republican Leader Mitch McConnell of Kentucky noted that Obama extended the Bush tax cuts for two years in December 2010 because of a struggling economy. At 1.9 percent, the growth rate in the first three months of this year was slower than the end of 2010, when the economy grew 2.8 percent.
The Congressional Budget Office projects real GDP to grow at only 2.1 percent next year under a set of plausible policy assumptions. The Bipartisan Policy Center’s report predicts that a full sequester of defense and domestic programs next year would reduce that rate by roughly half a percentage point – bringing down the growth rate to a mere 1.6 percent.
“The government must be careful not to take actions that might stall growth and exacerbate our current struggles,” the Center’s report stated. “Yet, the nature and immediacy of the sequester’s cut to defense and non-defense – indiscriminate and by 15 and 12 percent, respectively, in fiscal 2013 – will do precisely that: cause harmful repercussions throughout the economy.”