Automatic budget cuts -- known as sequestration -- are a self-inflicted threat to the feeble economic recovery.
Illustration: Nancy Ohanian Tribune Media Services
The flurry of deficit-reduction plans released over the past few years took different approaches to balancing the nation's books. But there was also critical common ground when it came to spending cuts.
Serious deficit-reduction blueprints -- such as Simpson-Bowles and Domenici-Rivlin -- wielded the budget ax with finesse. Cuts were to be phased in carefully to avoid a sudden megadose of austerity that would send a still-frail economy back into recession.
That yet another exasperating fiscal crisis is looming in the nation's capital is the latest reminder not only that policymakers have recklessly shelved these pragmatic plans but that Washington gridlock carries a steep, real-world price. Unless there's a last-minute deal between congressional Republicans and Democrats, deep and abrupt spending cuts that threaten the feeble economic recovery are set to kick in automatically next month.
"We should not be doing something that reduces economic output in a year in which we have high unemployment and extremely slow growth," said Steve Bell, senior director of economic policy at the respected Bipartisan Policy Center (BPC). "The United States cannot slow itself down deliberately.''
Bell's last point is important. The looming slowdown would be entirely self-inflicted. The cuts, known as "the sequester," were put in place by the 2011 debt-ceiling deal approved by the Republican-controlled U.S. House and Democratic-controlled U.S. Senate and signed by President Obama. Claims that one party is responsible for the cuts are ludicrous. The tax increases headed off by January's fiscal-cliff deal were also part of the 2011 debt-ceiling agreement.
The BPC is one of many organizations sounding the alarm about the impact of the cuts, which were designed to be so draconian that they would force Congress to find a more intelligent approach. The nonpartisan BPC warns that as many as 1 million jobs could be lost in 2013 and 2014 if the $85.3 billion in defense and domestic spending cuts called for this year take effect. (Keep in mind that sequestration calls for similar cuts over the next decade.)
This week, the Congressional Budget Office also warned that the looming sequester could act as a brake on economic growth and hiring this year.
While Minnesota is far less dependent on federal dollars than most states, the impact of the sequester would be felt here. The scheduled 5.1 percent reduction in "non-defense discretionary spending" may cut federal dollars available for medical research -- a big concern given that almost 10,000 jobs here are linked to funding from the National Institutes of Health. Funding for Head Start, special education and assistance to needy moms and kids also could be affected, according to an analysis last fall by Minnesota Management and Budget.
An expected cut of 7.3 percent in discretionary defense spending also would be felt in the state, which is home to defense contractors large and small. A 2012 report from the Center for Security Policy estimated annual revenue losses of $349 million for state firms under sequestration, which would no doubt result in private-sector job losses.
The sequester's economic pain might be worth it if the cuts actually did help bring the nation's books into balance. But the BPC also cautions that the cuts would have minimal long-term impact because they don't address key drivers of deficit spending -- entitlement programs and tax expenditures (credits or deductions) that drain revenue.
While hopes for reaching a "grand bargain" to sensibly stem red ink with both spending cuts and tax increases have faded, sequestration illustrates why a deal is still sorely needed. Lurching from one budget crisis to another is no way to run a country. The unending gridlock raises a disturbing question: Is it the only way we have to run this country?
An editorial of the Star Tribune (Minneapolis, Minn.).
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