Domestic Spending Due for an Extreme Haircut
Business + Economy

Domestic Spending Due for an Extreme Haircut

iStockphoto/The Fiscal Times

Until now, lawmakers and the Obama administration have focused largely on the Pentagon and the defense industry in warning of the dire  economic damage that would be wrought if $83 billion of automatic across-the-board spending cuts are allowed to take effect early next month. But the looming cuts in other major departments and agencies that oversee domestic programs and economic development may also have a harmful impact on the recovery, budget experts and advocacy groups warn.

The Defense Department and some major defense contractors began tightening their belts and furloughing civilians late last year in anticipation of about $43 billion of automatic cuts or sequestration or an average of 7.3 percent this year.

While President Obama and congressional Republicans wrangle over the fate of sequestration this week,  the heads of major domestic departments including Health and Human Services, Homeland Security,  Education and Housing and Urban Development are bracing for similar cuts of $43 billion this year, or an average of 5.1 percent.

Acting White House Budget Director Jeffrey Zients instructed cabinet members and government administrators in a January directive to prepare for “significant and harmful impacts on a wide variety of government services and operations” should Congress and the White House fail to act to block sequestration. For instance, hundreds of thousands of families could lose critical education and wellness services through Head Start and nutrition and assistance programs, Zients warned. Billions of dollars in federal research and economic development grants could also be slashed over a decade.

Others view the federal government as bloated and ripe for deep cuts – whether surgical strikes or across the board savings. A March 2011 Government Accountability Office found substantial overlapping and duplicative programs that cost taxpayers billions of dollars each year.

The report found that the government has 15 different agencies overseeing food-safety laws, more than 20 separate programs to help the homeless and 80 programs for economic development.  Sen. Tom Coburn, R-Okla., who requested the report, estimated that it identified between $100 billion and $200 billion in duplicative spending. 

While on the face of it, a 7.3 percent cut in defense and a 5.1 percent cut in domestic spending doesn’t seem excessive or far out of line with austerity measures adopted in the private sector, the impact on government programs could be worse than they appear at first blush. The sequestration law is a blunt instrument which cuts program expenses across the board, whether they are doing well or doing poorly.

“You don’t have the option of making smart cuts,” said Robert Bixby, executive director of the Concord Coalition, an anti-deficit group. “You might get lucky and make some smart cuts, but you might also – and inevitably will—make some stupid cuts.”

While some programs such as Social Security, Medicaid, food stamps and veteran and federal retirement programs will be exempt from the cuts, the Office of Management and Budget said that scores of program spending for economic development, vocational education and employment training, as well as substantial aid to the states, would take a big hit.

Moreover, federal agencies would likely be forced to lay off or furlough hundreds of thousands of the roughly 2 million federal workers, while reducing essential services such as food inspection, air travel safety, federal prison security, border patrols and other mission-critical activities.

HHS alone would have to absorb cuts of about $6.6 billion, while Homeland Security, Education and HUD  would be cut by $3.7 billion each. Those reductions in the fiscal year that began last Oct. 1 would come on top of a $1.2 trillion reduction in spending already mandated by the Budget Control Act of 2011.

President Obama called on Congress Tuesday to quickly pass a new package of limited spending cuts and tax increases to temporarily block the substantial across the board cuts ready to take effect March 1. But Republicans are opposed to raising additional tax revenue as part of any deal, and many conservatives who once opposed sequestration are now arguing that the easiest way to lock in substantial deficit reduction is to allow the automatic cuts in defense and non-defense programs to take effect.

“Congress needs to show some courage and brains and cancel sequestration,” J. David Cox Sr., national president of the American Federation of  Government Employees, said last week. “The growing acquiescence to sequestration needs to end.”