Let the Cuts Commence
Automatic federal spending cuts known as “sequestration” went into effect last Friday, March 1 as the White House and Congress failed once again to reach a budget agreement to reduce the national deficit. For apprehensive Americans, pointing fingers is all there is left to do, but many are unaware of where the blame actually lies.
“The problem is that both sides, while they both have their merits, think they have the key to economic recovery. In reality, they don’t. No one party or set of ideals can fix something like this,” said Justin McLawhorn, deputy director of outreach and engagement for ODU Young Democrats
The cuts were to start on Jan. 1, but Congress and the White House agreed on a two month delay. In fact, the across-the-board spending cuts were never meant to happen. They were proposed in a bill during 2011 budget negotiations when a divided Congress argued over the debt ceiling. With bipartisan approval, it was intended to be so outrageous that legislators and the White House would be forced to compromise and prevent the cuts. Now, the government must shave off $85 billion from the budget by the end of the fiscal year, Sept. 30.
Hampton Roads delegation was divided over the bill. Reps. Scott Rigell, R-Virginia Beach, and Rob Wittman, R-Westmoreland County voted yes. Reps. Randy Forbes, R-Chesapeake, and Bobby Scott, D-Newport News voted no. Sen. Mark Warner and former Sen. Jim Webb, both Democrats, also voted for the bill.
Because these cuts must be achieved over seven months rather than a full year, the effective percentage reductions will be approximately 13 percent for non-exempt defense programs and 9 percent for non-exempt nondefense programs, according to the Office of Management and Budget report on March 1.
“According to analysis by outside experts, sequestration would reduce real GDP growth for 2013 by 0.5 to 0.7 percentage points were it to continue for the rest of the calendar year,” the OMB report said.
States with a heavy military presence will hurt the most. Virginia will take the biggest blow according to Stateline.org. Gov. Bob McDonnell said the state’s economy could face a loss of up to $4.2 billion in economic output over five years and 164,000 direct and indirect jobs.
“Make no mistake. It’s going to hit [Virginia] harder than other places,” Christine Chmura, an economist with Chmura Economics and Analytics, told the Virginian-Pilot. “If sequestration occurs as it’s currently laid out, Virginia will end up in a recession.”
The Defense Department is responsible for half of the automatic cuts despite that fact that its 2012 budget, about $614 billion, accounts for one-fifth of federal spending. The Navy is also required to cut $4 billion from its annual budget of $154 billion in six months. Military pay and benefits will be unaffected for now. However, Tricare, the military’s health care plane, may face issues later in the year. War costs will also remain untouched.
A report released by the White House outlining budget cuts by state said 90,000 civilian defense employees would be furloughed at a pay loss of $648 million and the scheduled maintenance of 11 Navy ships in Norfolk would be cancelled.
Starting in April, hundreds of thousands of government workers are expected to be furloughed, including as many as 39,000 Navy and Marine Crops civilian employees. Other impacts will include commissaries (military grocery stores), closing on Wednesdays, reductions in military child care center unplanned drop-off hours and heavier workloads for uniformed personnel.
Economists at Old Dominion University said if sequestration persists through the end of 2013 the region would see a total economic impact of $2 billion and a loss of 12,200 jobs.
Programs that are exempt from sequestration include Social Security, Medicaid, veteran’s benefits, retirement programs and refundable tax credits, according to the Congressional Research Service. Child health care and nutrition programs, like school lunches, foster care, Pell Grants and assistances for lower-income families, are also exempt.
Programs like Medicare, student loans, federal pay, unemployment compensation and some federally funded community health services are subject to limited cuts.
President Obama hopes the impacts of the sequestration will provoke strong responses from those affected, putting more pressure on lawmakers.
“My hope is that, after some reflection, as members of Congress start hearing from constituents who are being negatively impacted, as we start seeing the impact that the sequester’s having, that they step back and say, all right, is there a way for us to move forward on a package of entitlement reforms, tax reform, not raising tax rates, identifying programs that don’t work, coming up with a plan that’s comprehensive and that makes sense?” Obama said from the White House briefing room. “And it may take a couple of weeks, it may take a couple of months, but I’m just going to keep pushing on it.”
By: Derek Page