2/23/2013 5:00 AM ET|
5 things to know about the sequester
While the sequester may use a 'meat cleaver' approach, the spending cuts are not enough to put the whole economy through the grinder.
With the automatic spending cuts kicking in next week, it's tough to separate fact from bluster. Both the Obama administration and congressional Republicans chose this week to go with finger-pointing, a subtle acknowledgement that their differences on taxing and spending won't be bridged by more negotiating.
President BarackObama and his team warn of government services getting even worse if the $85 billion of across the board cuts in fiscal 2013 are allowed to kick in next Friday -- cars stuck idling at understaffed border posts, furloughed bureaucrats, fewer police and firefighters, thousands of hungry children kicked off government nutrition programs.
Meanwhile, House Speaker John Boehner, R-Ohio, labors to remind the country that these reductions -- or sequestration -- were initially a White House-proposed fix in order to raise the debt ceiling back in 2011.
"Right up until the last minute, both the president and the Republicans are going to try to make the most hay out of the issue and make the other guy look bad," said Steve Ellis, vice president of Taxpayers for Common Sense. "It's almost like they would rather have the issue than the solution. And I think it's unfortunate for taxpayers, I think it's unfortunate for the government, but this is the reality of politics today."
A few key facts have emerged over the past several days amid the blame game. First, there is a growing consensus that sequestered cuts totaling as much as $1.2 trillion over the next decade won't lower the national debt. The main drivers of the deficit -- Medicare, Medicaid and other entitlement programs -- have been exempted from cuts. The second is that while the sequester may use a feckless "meat cleaver" approach to trim spending on defense and many domestic programs it's not enough to put the whole economy through a meat grinder.
"Is it a calamity? No," said Douglas Holtz-Eakin, an economist who has advised Republican presidential campaigns and now serves as president of the American Action Forum. "It's going to look more like the rounding error in GDP. I think there is a lot more noise than light being shed on the sequester."
Here are the five things you need to know:
No recession is coming
For all the fear-mongering about hundreds of thousands of furloughs and reduced services, government officials aren't hyping the possibility of a recession. In a $16.4 trillion economy, the sequester just isn't big enough.
Macroeconomic Advisers garnered attention this week for predicting that the measure would block the creation of 700,000 jobs by the end of 2014. The sequester lops half a percentage point off from growth, but the gross domestic product would still chug along at a 2% pace -- not too far off the mark in this tepid recovery. "Not catastrophic," the firm concluded.
What really matters, economists note, is the issue Obama and Republicans have largely stayed quiet about -- $200 billion in tax increases slated for this year as part of the fiscal cliff deal approved on New Year's Day. Rates ticked up on household incomes above $450,000 and the two-year payroll tax holiday ended, which would likely cause many consumers to open their wallets less often.
Failure to extend the current budget resolution or defaulting on our debt -- both possibilities in the months ahead -- would be cause for panic.
The cuts are really less than $85 billion
Politicians keep talking about $85 billion in spending cuts. Technically, you should halve that figure because agencies can draw from stockpiles of unused funds from past years. The sequester applies to how much money is authorized, not how much federal agencies actually spend.
"This excess budget authority rolls over from year to year," wrote Bank of America economists Ethan Harris and Joshua Dennerlein in a client note. "These programs can use this excess budget authority to count towards their sequester requirements."
Actual spending cuts would be about $42 billion for the seven months left in this fiscal. Or on an annualized basis, $72 billion for 12 months, according to Bank of America.
More from The Fiscal Times:
VIDEO ON MSN MONEY
The TRUTH?: This economy went through the grinder the day that Noblaba put his hand onto the bible and was sworn in. Under Noblaba's reign, we have TRILLIONS MORE in debt NOW than W, yet these boards and Dems want the public to blame W for our debts. Noblaba has spent BILLIONS on failed programs, lost BILLIONS with the bailouts of Chrysler (1.6 BILLION) and GM (estimated 12 BILLION lost this is FACT google Treasury loses billions of GM bailouts), yet dems STILL want to blame W. Noblaba and his Dems wasted BILLIONS on "shovel ready jobs" programs that NEVER materialized, yet Dems want to still blame W.
Guys, put down the kool aid. W has been gone for 5 years now. It's time to face facts that your lord and savior has this country's finances in a lethal chokehold, and we are quickly running out of time to break it....
Oh wait, I'm sorry. No worries here. Noblaba will simply level some more forests, and print more greenbacks (which the value is garbage anyway), so we will be ok...
A dis-satisfied customer and voter...
The amount proposed for cuts is a pitifully tiny figure. It pales in comparison to the current interest we pay on the debt. We continue to borrow at record rates, keep wars going, talk of more war, expand welfare, social spending and tax productivity to pay for it. It all ends in ruinous policy making.
The social agenda of the Washington swill drinkers leave me amazed and Oblama is surrounded by clueless ignorants. Democrots and Republicrots should be ashamed at what they have created for our children.
Ladies and Gentlemen, may I call your attention to the center ring! And now let me introduce "The Governors" yes, that's right folks! Now the governors are parading in Washington to tell us all about the impending doom of these budget cuts. The governor from Delaware says he'll have to close the state if the cuts go through. Other states will likely do the same. Oh the horror, the horror!
AND THE FREAK PARADE CONTINUES!
President Bush ---the Bush TAX cuts!
O'Bama----the sequester layoffs!
The American people ----- the losers!
Well if oblamo would have passed a BUDGET 4 years ago, and didn't spend taxpayers money at
record breaking amounts the USA might not be living with HIS Mess now...
All he wants to barrow more money from China and drive Americans farther into debt...
Beware Americans..he is the most un-American president the USA has EVER had...
In the simplest terms, the way this is supposed to work is that the executive branch puts together a program and sets it before congress for funding.
Congress monkeys with it and approves a final budget which it then passes back to the executive branch for execution.
There are two current problems with this cycle that have resulted in the sequester nonsense.
First, the executive branch has no idea where money comes from (no, Barack, I do not mean the printing presses over at the fed), what a budget is or that it needs congressional authorization to spend money.
Second, about half of congress is as giddy over blowing the taxpayers money on projects aimed at getting themselves reelected as the executive branch and the rest are being bullheaded about not letting them.
The executive branch needs to understand that its head is not Idi Amin Dada, dictator for life, but just the most recently anointed president.
Congress needs to get out the Webster's and look up COMPROMISE, in all of its shades and nuances and to apply it to getting cracking on passing a real budget for a change.
Fun and games is over kiddies, get to work.
And by the way, Barack, COMPROMISE does not mean "my way or the highway".
Here's a few facts. If America were to reduce the debt by 1% over a 5-7 year period we would be back on track.
Every night America pays it's bills, yes bill are paid in the evening. We take in about $6.5 billion every day but our debt in $11 billion, we borrow about $4.5 billion every single day to pay for our spending. On top of this every single day we borrow $40-50 billion to pay off old debt............ It is vital that this country stops the increased spending.................
Give me a break, all this whining from Obama. It's a cut of 1/2 of 1% of the bloated federal budget. If that's all it takes to drive us into another recession we were never out of the last one.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The major averages posted solid gains ahead of tomorrow's policy directive from the Federal Open Market Committee. The S&P 500 rallied 0.8%, while the Russell 2000 (+0.3%) could not keep pace with the benchmark index.
Equity indices hovered near their flat lines during the first two hours of action, but surged in reaction to reports from the Wall Street Journal concerning tomorrow's FOMC statement. Specifically, Fed watcher Jon Hilsenrath indicated that the statement ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'