WASHINGTON – It seems the looming sequestration that one lawmaker concedes will take “a meat axe” to the federal deficit is like the weather, to paraphrase Mark Twain – everybody talks about it but nobody does anything about it.
Time is running out for the White House and congressional Republicans to reach an accord that will prevent across-the-board budget cuts totaling $1 trillion over the next nine years from taking place. The two sides remain far apart and neither appears willing to make any concessions to halt a process that analysts claim will disrupt government services and has the potential to toss a monkey wrench into an already slumbering economy.
“This is not a game,” warned Leon Panetta, the outgoing secretary of Defense whose department could be staggered by the cuts. “This is reality. These steps would seriously damage the fragile American economy and they would degrade our ability to respond to crisis precisely at a time of rising instability across the globe — North Africa to the straits of Hormuz, from Syria to North Korea. We would have no choice but to implement these kinds of measures if Congress fails to carry out its basic responsibility to the American people.”
The situation is complicated.
During the summer of 2011, congressional Republicans and the White House were wrestling over legislation to raise the debt limit, with the GOP looking to reduce a national debt that has now reached $16.5 trillion. Negotiations finally led to the Budget Control Act of 2011, which hiked the debt ceiling in exchange for deficit reduction measures totaling $2.4 trillion over a 10-year span.
The bill specifically identified $1.2 trillion in cuts. The remaining $1.2 trillion over 10 years was left to be determined by a so-called “Super Committee,” with its recommendations to be implemented by Jan. 1, 2013. If the panel failed to reach an agreement, the legislation called for across-the-board spending reductions, called sequestration, to be shared by defense and non-defense programs, although Social Security, Medicaid, federal retirement, several anti-poverty programs, military pay, and the price tag for ongoing wars were exempted.
The Super Committee failed to reach concurrence but a last-minute deal struck by the administration and congressional Republicans over what became known as the “fiscal cliff” delayed sequestration to March 1. As part of that deal, the sides agreed to permit Bush-era tax cuts for those earning $250,000 or more to expire, thus reducing the amount required for sequestration to about $1 trillion over nine years.
House Speaker John Boehner (R-Ohio) and Senate Republican Leader Mitch McConnell, of Kentucky, insist that they will not consider including any additional tax hike to reach that $1 trillion target, asserting that the amount must come from program cuts. President Obama is calling for a balance of budget cutbacks and tax reform measures, adding that steps should be taken to push sequestration further down the calendar so an agreement can be reached. GOP leadership snubbed the White House recommendation.
McConnell said “American families are already feeling the pinch of the Obama economy” and that it’s “time to get serious” over budget cuts.
“If Democrats have ideas for smarter cuts they should bring them up for debate,” McConnell said. “But the American people will not support more tax hikes in place of the meaningful spending reductions both parties already agreed to and the President signed into law.”
According to the nonpartisan Center on Budget and Policy Priorities, sequestration will force across-the-board cuts totaling $85.3 billion in 2013, split equally between defense and non-defense programs – 42.7 billion. The budgets for mandatory defense programs will be cut by 7.8 percent while discretionary defense programs lose 7.3 percent. On the domestic side, Medicare faces a 2 percent reduction while mandatory spending is cut 5.3 percent and discretionary programs lose 5.1 percent.
The Office of Management and Budget maintains sequestration will have “a devastating impact on important defense and nondefense programs.”
“While the Department of Defense would be able to shift funds to ensure war fighting and critical military readiness capabilities were not degraded, sequestration would result in a reduction in readiness of many non-deployed units, delays in investments in new equipment and facilities, cutbacks in equipment repairs, declines in military research and development efforts and reductions in base services for military families,” according to a recent OMB report.
On the domestic side, the report said, sequestration would, among other things, harm education initiatives by reducing grants that support smaller classes, afterschool programs and children with disabilities. The Federal Aviation Administration’s ability to oversee and manage airspace and air traffic control would be reduced. The Department of Agriculture’s efforts to inspect food processing plants and prevent foodborne illnesses would be curtailed.
“The Environmental Protection Agency’s ability to protect the water we drink and the air we breathe would be degraded,” the report said. “The National Institutes of Health would have to halt or curtail scientific research, including needed research into cancer and childhood diseases. The Federal Emergency Management Agency’s ability to respond to incidents of terrorism and other catastrophic events would be undermined. And critical housing programs and food assistance for low-income families would be cut.”
Furloughs and layoffs by the thousands are expected to occur within the federal government. And the impact will bleed into the private sector. Marion C. Blakey, president and CEO of the Aerospace Industries Association, which works closely with the Pentagon, said more than two million American workers across all sectors of the economy will lose their jobs “if our political leaders fail to fix the self-inflicted wound of sequestration and the dangers it poses to our warfighters and national security.”
“Sequestration is a slow-motion catastrophe for our military forces, our space program and virtually every critical function of our government from air traffic control and border security to food inspection and more,” Blakely said.
Adam Hersh, an economist at the liberal Center for American Progress, said allowing sequestration to occur will cost the U.S. economy an estimated 0.6 percentage points of growth in 2013.
“The combined effect of these spending cuts and the recent changes to U.S. tax policy could dampen U.S. economic growth by 1.9 percentage points in the near term,” Hersh said.
Dr. Stephen S. Fuller, economics professor and director for regional analysis at George Mason University in Virginia, said the results of sequestration “are bleak but clear-cut.”
“The unemployment rate will climb above 9 percent, pushing the economy toward recession and reducing projected growth in 2013 by two-thirds,” Fuller said. “An already weak economy will be undercut as the paychecks of thousands of workers across the economy will be affected from teachers, nurses, construction workers to key federal employees such as border patrol and FBI agents, food inspectors and others.”
The Department of Defense is facing particular problems. Leon Panetta said on Feb. 6 that the Pentagon is facing “the most serious readiness crisis that this country is going to confront in over a decade” as a result of sequestration.
If Congress fails to act, Panetta said, the department will be forced to absorb $46 billion in sequester reductions between now and Oct. 1, the beginning of the 2014 fiscal year, resulting in “a serious disruption in defense programs.”
“And now, if we’re spending at this rate and we suddenly have to hit reductions, we’re going to have to be able to take those deductions where?” he asked. “We’ve got to protect the war-fighters in Afghanistan. We’ve got to protect our force projection in the Middle East. There’s only one place that comes out of, and it’s readiness. And that’s what will happen.”
The DOD is prepared to furlough as many as 800,000 civilian workers for up to 22 days and they could face a 20 percent cut in their salary. Army training and maintenance will be reduced, placing about two-thirds of the active brigade combat teams outside Afghanistan at a reduced readiness level, placing more stress on those who are in the war zone.
Naval operations in the Western Pacific will be reduced by as much as one-third. The Air Force will face reduced flying hours and weapons system maintenance, placing flying units below acceptable readiness standards by the end of the fiscal year.
“This is no way to govern the United States of America,” Panetta said.
Obama and Republican congressional leaders have talked about taking steps to kill the sequestration but they appear miles apart on how to get the job done with the March 1 deadline looming. In a press briefing on Feb. 5, Obama repeated that a “balanced mix of spending cuts and tax reform is the best way to finish the job of deficit reduction.”
“Deep, indiscriminate cuts to things like education and training, energy and national security will cost us jobs and it will slow down our recovery,” Obama said. “It’s not the right thing to do for the economy — it’s not the right thing for folks who are out there still looking for work.”
The president said “modest” entitlement reforms that reduce the federal government’s health care expenses without shifting the costs to middle-class seniors, the working poor, or children with disabilities is worthy of consideration, along with “tax reform, so that the wealthiest individuals and corporations can’t take advantage of loopholes and deductions that aren’t available to most Americans.”
If Congress proves unable to settle on a package by March 1, the president suggested they adopt a smaller package of spending cuts and tax reforms “that would delay the economically damaging effects of the sequester for a few more months until Congress finds a way to replace these cuts with a smarter solution.”
Boehner on Feb. 6 rejected the delay option even though he said the sequester represents “a meat axe” approach to cutting the deficit. He indicated Republicans, who control the House, are only interested in enacting program cuts to reduce the deficit and avoid sequestration, noting that a tax hike was approved earlier as part of the negotiations.
“Listen, the American people believe that the tax question has been settled,” Boehner said. “They know the president called for a ‘balanced’ approach to the debt – a combination of revenues and spending cuts. And they know he’s gotten his revenue. The American people do not believe the president will use further tax revenues to lower the debt. After having seen this president attempt to spend his way into prosperity over the last four years, they know he’ll spend it.”
Neither Obama nor congressional Republicans have placed a comprehensive plan on the table. But several Republicans on the Senate Armed Services Committee have teamed up with GOP lawmakers in the House to offer the Down Payment to Protect National Security Act, a proposal to replace the $85 billion that would be lost this year under sequestration. Sponsored by Sen. Kelly Ayotte (R-N.H.) and Rep. Howard “Buck’’ McKeon (R-Calif.), the measure would freeze congressional wages for as long as a budget deficit exists and reduce the federal government’s civilian workforce by 10 percent over 10 years, mostly through attrition.
In the past, GOP lawmakers have offered options that include raising the Medicare eligibility age from 65 to 67 and changing the method used to calculate the benefits provided by programs like Social Security and Medicare. Lawmakers also cited potential savings coming from federal employee pension plans and shifting some Medicare costs to beneficiaries.
Some, like Sen. Dan Coats (R-Ind.), are insisting that entitlement reform take center stage.
“Let me be straight and say the things we are not supposed to say because it is political suicide — if we don’t reform Medicare, Medicaid and Social Security it doesn’t matter what else we do, we will not solve this problem,” Coats said.
“The real problem is finding the political will and courage to be honest with the American people and pass a fiscal package that will reassure investors, consumers and the world that the United States of America has finally taken the steps necessary to address the cause of our debt and put us on a path to return to fiscal soundness,” he said.