Sequestration – Will it be as devastating as predicted?

You’ve heard it from both sides of the aisle – Nancy Pelosi, John McCain, President Obama, Mitch McConnell – sequestration will be “devastating.”  “We’ve got to avoid it, we’ve got to stop it,” said John McCain.  He is being universally echoed with similar quotes by all of the Democrat leadership in Congress.  Let’s begin this discussion with the facts. 

What is sequestration?  Sequestration is a budget law that requires across the board spending cuts amounting to $1.2 trillion over 10 years or $109 billion per year.   

How much will be cut in 2013?  The last minute fiscal cliff deal in early January included cuts of $24 billion for 2013, so in the remaining seven months of this fiscal year the government must cut another $85 billion. 

How much is the federal government’s budget for the current fiscal year?  $3.8 trillion

Where would the cuts come from?  Equal amounts would come from the Defense Department and discretionary social spending.  The Defense Department makes up about one-quarter of the total federal budget; discretionary social spending comprises about half of the total budget, and non-discretionary social spending and the interest on the debt making up the balance. 

So who will be most affected by the cuts?  The cuts on a percentage basis would be deepest in defense spending because it represents a quarter of the budget but half of the cuts.

What programs won’t be cut?  Social security, Medicaid, the food stamp program and veteran’s benefits.  Active duty personnel would also be exempt.  Interestingly, Medicare is not exempt.

When does sequestration begin?  Officially it begins March 1^st but in reality it will roll out over a period of several weeks.

So those are the facts.  Now let’s look at what the impact of these cuts in spending will have on our economy.  The Congressional Budget Office predicts that the sequestration cuts will reduce public- and private-sector employment by 750,000 jobs and will reduce our GDP by 0.5%.  In other words, our GDP, which is growing at about 2.0% right now, would slow to about 1.5%.  Depending on who you listen to the list of programs that will be affected is long and deep including:

• the Federal Aviation Administration,
• the National Parks,
• the Pentagon, 
• Health and Human Services, 
• Humanitarian Aid,
• Border Security,
• Education,
• Disaster Relief
• Law Enforcement 

The list appears to be endless.  This is what those in power are saying, in a nutshell, “The world is coming to an end as we know it.”  They may not use these exact words but that is what they are trying to convey.  I respectfully disagree.  Yes there will be consequences to making these cuts.  There will be some pain but the world will go on and in the long run we’ll all be better for it.  

Sadly, there are very few politicians in Washington who are willing to make modest cuts in spending, and make no mistake about it, that is what $1.2 trillion is over 10 years.  A cut of $85 billion in fiscal 2013 represents 2.3% of the total $3.8 trillion federal budget.  Do you actually believe that a 2.3% cut in spending is going to be “devastating?”  Have you had to make cuts in personal spending that have been much greater than this over the past several years?  I certainly have.   

The sequestration cuts are not perfect, they’re a blunt instrument to cut spending, rather than a deliberate plan that sets priorities, trims entitlements, and cuts other spending.  It would be better to replace them with better cuts but the reality is that Washington does not have the will to make spending cuts.  There is no political block in Washington that represents the constituency of the overburdened taxpayer.  In contrast, there are thousands of lobbyists on Capitol Hill that visit our congressional representatives in order to make sure that they’re constituency, whatever that may be, is getting their fair share of the spending pie. 

Don’t buy into the hysteria.  The cuts will not be devastating.  If the sequestration cuts actually happen, six months from now you’ll hardly notice. 

Sources: Sequestration Q & A, Money Watch, by Jill Schlesinger, February 22, 2013; Sequestration: The Facts About the Policy, BeforeItsNews.com, February, 19, 2013; The GOP Divide Over Sequestration (and Everything Else), The Atlantic, by Molly Ball, February 15, 2013.