March 6, 2013
LIA Monthly Economic Report: The Sequester & Upcoming Fiscal Negotiations
By: Dr. Pearl Kamer
Just as the U.S. economy is beginning to recover from the most devastating recession since the Great Depression, the March 1st sequester could plunge the nation into another recession. At best it will slow what has been a subpar recovery. Revised figures show GDP growth of only 0.1% in the fourth quarter of 2012.
The sequester will cut federal spending by $85 billion through September 30th. It would reduce defense programs by 8% and domestic programs by 5%. The $85 billion would be a down payment on $1.2 trillion in cuts over the next decade. Although sequestration would reduce agencies' budget authority by $85 billion, actual outlays would fall by only $44 billion in the 2013 fiscal year. This is equivalent to 1% of total federal spending. Most of the impact will be felt in the second and third quarters of this year.
Certain federal programs are exempted from cuts while other programs would be hard hit. Medicaid, social security and other safety-net programs will be exempted from cuts. Pay for enlisted military personnel will also be spared. Otherwise, there would be across-the-board cuts in military and domestic programs. Programs would be cut indiscriminately, without evaluating their relative importance. Various federal agencies have already submitted their planned cuts. Most law enforcement personnel will be furloughed for two weeks during the current fiscal year. This will reduce coast guard operations and reduce the number of customs agents and airport security personnel on duty at any one time. Some 10% of the Federal Aviation Administration's work force of 47,000, including air traffic controllers, will be on furlough each day to meet a $600 million cut. The cut to the FBI will be about $550 million. As a result, every FBI employee will be furloughed for almost three weeks during the current fiscal year. Federal prosecutors will handle 600 fewer cases because of furloughs resulting from a $100 million cut. About 70,000 children will lose access to Head Start and 14,000 early childhood teachers will be discharged because of a $424 million cut. Parents of 30,000 low-income children will lose child-care assistance. Nearly 1,000 grants from the National Science Foundation will be canceled or reduced, affecting key research areas. A cut of $350 million to the Centers for Disease Control and Prevention will result in 25,000 fewer cancer screenings. The Navy plans to shut down four air wings on March 1st. The Army will curtail training for 80% of its ground forces. By the end of the year, two-thirds of its brigade combat teams will fall below acceptable levels of combat readiness.
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