Feb. 25, 2013 at 7:17 PM ET
As the clock ticks down in another federal budget battle, warnings are growing more dire about the consequences of not reaching a deal by the end of the month.
The so-called budget sequestration would force about $85 billion worth of across-the-board spending cuts that would ripple through the federal government and broader economy.
Here’s a look at what caused the impasse and what it may mean for most Americans.
Is this the same as the “fiscal cliff”? I thought they fixed that problem.
Not exactly, though we have seen this movie before. If "The Fiscal Cliff" was last year’s runaway Hollywood blockbuster disaster movie, "The Sequester" is this year’s sequel – complete with the same plot line and your favorite politicians in starring roles.
The original script was written in Aug., 2011 when, as part of that summer’s horror hit, "Debt Ceiling Debacle," Congress and the White House agreed to a set of tax hikes and spending cuts so onerous everyone assumed the shoot-ourselves-in-the-foot budget package would be replaced with a sensible plan by Jan. 1, 2013. In late December, a last-minute deal defused the tax increases on all but the wealthiest households, but lawmakers punted the spending cut deadline to March 1.
So they’ll just do another last-minute deal again. This March 1 doomsday scenario is just hype, right?
Maybe. Recent dire warnings from both the Pentagon and the Transportation Department are clearly aimed at putting pressure on Congress to come up with a deal.
But if the gridlock persists, and lawmakers don’t reach a deal soon, the spending cuts baked into the current law could indeed create havoc with some government services and popular programs. That’s because the law bars government agencies from making rational, considered decisions about which programs to fully fund and which ones to cut entirely. So it’s not the depth of the cuts so much as the way they’re required to be made that’s cause for alarm.
But don’t we need to cut federal spending?
Sure, but this is not the way to go about it. Say you took a pay cut and had to figure out how to cut your household spending by 10 percent. You’d probably gather the family around the kitchen table, review where the money goes each month and figure out what you can do without. No more ordering Chinese three times a week. Maybe you have to downsize to a mobile phone plan with fewer minutes. Belt tightening is always painful, but done carefully you can usually get back to a more or less normal life.
Now suppose there was a law that said – instead of making careful, considered decisions – you had to spend 10 percent less on every bill that comes in. If you pay the phone company only 90 percent of your bill, sooner or later they’ll shut off service. Try paying your landlord 90 percent of your rent and see how long before you get served with an eviction notice.
For that matter, try ordering just 90 percent of a new submarine for the Pentagon. It’s not like you can just lose the sunroof and skip the upgraded exterior trim package.
That’s what makes the process so disruptive – even though the total cuts are relatively small.
This is insane. Why would anyone come up with a plan like that?
Because when it was written, the threat of a down-the-road disaster seemed like a better option than letting the U.S. Treasury default, an outcome that was just days away in July, 2011. To break that high-stakes deadlock, the sequester process was specifically (some say perversely) designed to create havoc with every single federal agency it applies to. The threat of the expected chaos, along with an extended cooling off period before the original Jan. 1 "fiscal cliff" deadline, was supposed to bring Congress to its senses and usher in a more rational, orderly budget process before the chaos of sequester cuts took effect.
What kind of chaos are we talking about here?
Until we hit the March 1 deadline, it’s impossible to know for sure. Some agencies and departments, including the Pentagon, are already getting ready to furlough workers. Because they need to give 30 days’ notice, those staff cutbacks aren’t expected to kick in until April 1.
By then, unless a new budget deal is in place, you could begin seeing the impact fairly quickly. With fewer TSA workers, travelers could see longer lines and delays at airport security checkpoints. Fewer FAA Air Traffic Controllers means fewer planes in the sky, which means ongoing flight delays or cancellations.
"It's going to be very painful for the flying public," warned Transportation Secretary Ray LaHood Friday.
Furloughed food inspectors could force some processors to shut down. The IRS has warned that your tax refund will be delayed if there are fewer workers to review and process your return. With fewer workers showing up at the FBI and Justice Department, criminal cases could take longer to investigate and prosecute.
Doctors would get paid less to see Medicare patients, and could have to wait longer to collect those fees. Households collecting federally-funded, extended unemployment benefits would get smaller checks. Farmers face cuts in crop subsidies.
No wonder they’re called “across the board”cuts. Would any part of the government be spared?
Yes. Social Security checks and Medicare benefits to patients won’t be cut. (But some of the workers who process those checks could be furloughed, which would delay payments to recipients.) Programs for low-income households, including food stamps, Medicaid, children’s health benefits and the earned income tax credit, would be exempt from cuts. Federal retiree and veterans’ benefits would also be spared.
Military personnel are exempt, but the Pentagon has said some 750,000 civilian workers would face furloughs.
And for all the disruption, we’d get very little serious deficit reduction. That’s because these cuts apply largely to so-called “discretionary” spending. The vast bulk of “mandatory” Social Security and Medicare spending would be left untouched. Those are, by far, the biggest contributors to the federal deficit.
Won’t this hurt the economy?
It won’t help. Some jobs will be cut (the White House estimates about 750,000) which the economy can ill-afford with unemployment at 7.9 percent. But the roughly $85 billion in mandated cuts represents only about a half-percent of annual U.S. gross domestic product.
This is crazy. How did we get into this mess?
The federal deficit has been expanding for some time, through multiple administrations, but the 2007 recession and 2008 credit crash made the problem a lot worse. Social Security and Medicare – largely off-limits to the sequester – need to be reformed by raising more money, paring future benefits, or both.
The good news is that there are a number of credible proposals to fix these problems and plenty of time to get fiscal policy on track to help the economy continue to get back on its feet.
Unfortunately, despite the sequester’s original goal of spurring Congress to act, there’s little evidence that lawmakers are any closer to getting to work on those big, broad solutions.
So if they do somehow come up with a deal March 1, are we through with all this nonsense?
Not necessarily. Because Congress hasn’t passed a formal budget in years, government spending is currently authorized only through late March. That creates yet another deadline for yet another disaster movie sequel. Unless yet another budget deal can be reached, look for "Continuing Resolution" to open in theaters March 27.
And watch for the trailer on the next coming attraction, "Debt Ceiling Debacle II," due later this year.