Sequestration: Can Congress & the President Find a Compromise?

The deadline for across-the-board budget cuts is a week away, and the impact could be broad-reaching.
PublicPolicy-blog

There's a famous saying that the opposite of progress is Congress. It seems that Washington D.C. is set on proving this statement true this year. After punting the football down the road back in December and January, the U.S. is once again poised on the precipice of sequestration – massive across-the-board government cuts that will take effect March 1 if no budget agreement can be made.

Congressional leadership and the President have been meeting about the issue in an attempt to find some common ground – but at the same time, both sides were "taunting" one another on Twitter, according to a story from The Associated Press. Not a great sign that we’re on the path to compromise.

The massive spending cuts – $85 billion spread across government agencies and programs this year – are required under a budget plan Obama and Congress agreed to in 2011. The goal was to encourage compromise between the parties before the cuts actually went into effect. So far, they've failed, in large part because the President and the Democrats want tax hikes, and the Republicans don’t. In the MDM Webcast, The 2013 Economic Outlook, Andrew Duguay, senior economist for ITR Economics, advised that in order to actually get the deficit down, tax increases would have to be considered. (Access the 2013 Economic Outlook here.)

The details of the sequester have changed slightly, thanks to the New Year's deal that punted the cuts to this point. So what does it mean today? The majority of those cuts are slated to be in the Department of Defense, which will see most of its civilian employees facing significant furloughs for the remainder of the year (CBS reports that these employees will have to give up one day a week for more than five months). Discretionary spending will also be cut, and with that we will likely see fewer contracts for new projects coming out of the department or existing contracts scaled back. (Read Defense Cuts Hit Distributors)

In addition, cuts to the Transportation Security Administration may lead to flight delays across the country, the Agriculture Department will cut food safety inspectors, and many other temporary or civilian posts will be furloughed or cut. The Congressional Budget Office estimates the sequester will cost the U.S. 750,000 private- and public-sector jobs in 2013 and reduce GDP by 0.5 percent. Not great news considering we're still in a tenuous recovery that's already struggling in the jobs creation area.

Congress and the President have a week to come up with an answer, but it's still up in the air whether they will succeed.

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