Editorial: Seeking a solution to the 'fiscal cliff'

  • Article by: EDITORIAL BOARD
  • Updated: October 19, 2012 - 11:14 AM

Congressional inaction on budget would cost jobs.

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The meat-axe-style federal spending cuts scheduled to take effect in January 2013 are known as "sequestration." By design, they're intended to be a blunderbuss approach to balancing the national budget -- a plan so ill-conceived that it would force Congress to come up with a smarter, surgical approach.

But since the sequestration cuts were passed in summer 2011 as part of the debt-ceiling deal by the Republican-controlled U.S. House and the Democratic-controlled U.S. Senate, the nation's political leadership, including President Obama, has failed to agree on a more sensible alternative that would gradually cut spending and increase tax revenue. What makes this even more disappointing is that there are credible, bipartisan plans to do this -- Simpson-Bowles, Domenici-Rivlin -- so policymakers didn't even have to start from scratch.

This dereliction of duty has put the nation's fragile economic recovery at risk. Austerity is needed, but it has to be phased in carefully. The megadose of austerity the nation will get in January if it goes off the "fiscal cliff" -- the combination of sequestration cuts and higher taxes set to take effect in 2013 -- is too much too soon.

The respected Congressional Budget Office issued a strong warning earlier this year that the nation would fall back into recession if the cliff is not averted. Now, the Congressional Research Service (CRS) has issued yet another grim report on the price of further political inaction. The report aggregates studies, including some by self-interested trade organizations, so it should be interpreted with caution. The job-loss numbers are on the high side, according to experts.

Nevertheless, the report has value because it's one of the first to translate the spending cuts into job-loss numbers for specific industries over time if cuts are permanent. Sequestration's $1.2 trillion in cuts are spread out over the next decade and are split between defense and domestic discretionary spending.

According to the CRS report, a "$48 billion sequester of Defense Department funds in 2013 ... might support 907,000 fewer direct, indirect and induced jobs.'' Cuts of 8.4 percent to the Department of Education and the Head Start program could eliminate more than 80,000 positions.

Of particular interest to Minnesota are the estimates for job losses in biomedical research -- an industry that is one of the state's economic backbones. Much of the funding for this research comes from the National Institutes of Health, which may face a 7.8 percent reduction in grants made to universities and other research facilities. That could cause a loss of 34,000 related jobs nationwide.

The CRS report also has value because it points out that jobs lost wouldn't only be in the public sector. Government contractors would feel the pinch. So would those in industries -- such as grocery stores or the service industry-- reliant on steady paychecks in their communities.

That point has to be paramount as policymakers work, hopefully, after the election on a sensible bipartisan debt-reduction plan. Spending cuts are needed, but they don't just painlessly eradicate "waste." The reduced revenue may well be funding that supports industries that power the economy in Minnesota and elsewhere.

Voters' priority this year should be choosing candidates who not only can forge a long-term deal, but who can be trusted to balance the budget with care.

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  • ACTION NEEDED


    "We don't want deficit reduction to come about all at once by allowing the various sequestration cuts and tax cut expirations to go into effect, but it doesn't mean we should do nothing. We need to develop a budget plan that provides a boost to the economy in the near term but puts it on a path to lower deficits in the longer run.''


    -PAUL N. VAN DE WATER, Center on Budget and Policy Priorities


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    To read the Congressional Research Service report, go here.

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