Congress & President failed to avert sequestration, $85 billion in cuts set to take effect in FY 2013

The federal government will have to slash $85 billion between now and the end of September after Congress and the White House failed to reach an agreement to avert sequestration last week.  

The $1.2 trillion sequestration – or across-the-board cuts to the discretionary budget mandated by the Budget Control Act of 2011 – will affect the function of nearly every federal agency.

Read more: Analysis: Impact of sequestration on non-defense discretionary spending

Given that the discretionary budget has been slashed by $1 trillion in 2011, the sequester cuts will severely weaken the federal government’s ability to secure the border, conduct effective foreign policy to protect American interests abroad, counter terrorist threats, take care of military veterans, ensure food safety, conduct meat and poultry inspections, process tax returns, review visa applications, provide housing assistance to homeless and disabled Americans, grant permits for oil and gas development on federal lands, ensure the safety of travelers, and invest in education and science and technology research to spur innovations that create jobs in the U.S.

“These cuts will hurt our economy. They will cost us jobs,” President Barack Obama told reporters after meeting with Congressional leaders on Friday. “At a time when our businesses have finally begun to get some traction – hiring new workers, bringing jobs back to America – we shouldn’t be making a series of dumb, arbitrary cuts to things that businesses depend on and workers depend on, like education, and research, and infrastructure, and defense. It’s unnecessary. And at a time when too many Americans are still looking for work, it’s inexcusable.”

According to the Office of Management and Budget, sequestration will result in a $85 billion budget shortfall across the federal government this fiscal year. Defense discretionary spending will be reduced by 7.8%; non-defense discretionary spending will be reduced by 5%; and Medicare spending will be reduced by 2%.

The sequester will result in 750,000 job losses and will lower economic growth by 0.5% to 0.7% this year alone, according to Jeffrey Zients, Deputy Director for Management.

Just before signing the sequester order for this fiscal year, Obama called on Republicans and Democrats to compromise and replace the remaining sequester cuts before the next fiscal year begins on Oct. 1, 2013.

“I do believe that we can and must replace these cuts with a more balanced approach that asks something from everybody: Smart spending cuts; entitlement reforms; tax reform that makes the tax code more fair for families and businesses without raising tax rates – all so that we can responsibly lower the deficit,” said Obama.

The “Stop the Sequester Job Loss Now Act” offered by House Democrats would replace the 2013 sequester with a mix of spending cuts and revenue increases.

H.R. 699 – sponsored by Rep. Chris Van Hollen (D-Md.) – would lessen the spending cuts to defense and non-defense discretionary programs by $27.5 billion from the current reduction level of $85 billion in FY 2013.

Among other things, Van Hollen’s bill would protect veterans programs from the sequester and extend farm subsidies for another year, except for direct payment programs.

“The agriculture safety net must be better targeted, while continuing to help farmers effectively manage risk. Direct payments – made regardless of yields, prices, farm income or size – are difficult to defend in times of record crop yields and prices,” Van Hollen explained.

The $27.5 billion in cuts would be replaced by tax revenues generated by closing loopholes benefitting big oil and gas companies, such as the Section 199 deduction, the “Last-In, First-Out” (LIFO), and foreign tax credits.

On the revenue side, the bill would also implement the so-called “Buffett Rule” to impose “a minimum effective tax rate of 30% on adjusted gross incomes above $2 million.” 

“The Buffett Rule is meant to ensure that middle class families will not confront higher effective tax rates than the wealthy,” according to Van Hollen.

However, Republican House Speaker John Boehner has refused to allow a vote on Van Hollen’s bill, arguing that since the House has “done its work” and that it is up to the Democratic-controlled Senate to pass legislation to avert the sequester.

“We’ve passed legislation to tackle the tough challenges that America faces only to see our Senate colleagues do nothing,” said Boehner. “This sequester was the President’s idea; his party needs to follow through on their plans to replace them.”

The GOP’s plan would offset the sequester cuts for defense discretionary programs by imposing steeper cuts on non-defense discretionary programs, such as food stamps, health care and anti-obesity programs, and the Home Affordable Modification Program (HAMP) which helps distressed homeowners facing foreclosure.

Boehner also dismissed any proposal seeking to raise tax revenues.

“Let’s make it clear that the President got his tax hikes on Jan. 1st. The discussion about revenue in my view is over. It’s about taking on the spending problem here in Washington,” said Boehner. “The American people know that Washington has a spending problem.”

Boehner indicated that the House will take up another continuing resolution (CR) this week to fund the federal government past March 27th while Congress continues to figure out a way to replace the remaining sequester cuts.

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2 Comments on “Congress & President failed to avert sequestration, $85 billion in cuts set to take effect in FY 2013

  1. Pingback: Defense civilian employees face 11 days of furlough | What The Folly?!

  2. Pingback: Roundup: Impacts of sequestration on defense & non-defense programs | What The Folly?!

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