Less than two months ago Washington escaped from the doomsday scenario of the looming “fiscal cliff.” Now it faces the threat of the less colorfully named “sequester” or “sequestration,” depending on who’s talking about it, but somehow the dire warnings of impending disaster are beginning to sound unconvincing.
Certainly there is reason for some concern, as the $85 billion in automatic spending cuts that are set to take effect on March 1 are going to put a dent in the budgets of practically every federal government agency, as well as many state and local budgets. The cuts may lead to layoffs and furloughs of federal workers, as President Obama and his cabinet have been warning.
There is already some evidence of a slowdown in the economy as businesses worry about the effects of reduced spending as local military bases and government offices pare back their spending.
Obama has been calling on Congress to balance the spending cuts by ending some tax breaks for wealthy individuals and large corporations. Senate Democrats plan to introduce legislation this week to do that. For their part, Senate Republicans plan to introduce their own competing bill, making it all but certain that neither bill will pass.
But the $85 billion in cuts represent a relative drop in the bucket compared to the $1.2 trillion in cuts that had been part of the deal when the White House and Congress originally agreed to impose the sequester back in August 2011 in order to avert a crisis over raising the debt ceiling.
As part of that deal, which was spelled out in the Budget Control Act of 2011, the two parties agreed to impose automatic spending cuts in defense programs and discretionary programs this year only if they failed to come to an agreement on a deficit reduction plan. Despite a series of meetings and reports in the past two years, including the Simpson-Bowles deficit commission report and fruitless attempts at compromise by a congressional “supercommittee,” the Democrats and Republicans in Congress never could agree on what to do. So now the sequester is set to take effect, after being pushed back for a few months as part of the fiscal cliff deal.
Estimates of the eventual impact of the sequester range from catastrophic to business as usual. The affected nonmilitary programs are expected to receive a cut of 5 percent, while defense programs will be cut by 8 percent. But other commentators are predicting that the cuts will actually be less than 1 percent in the various programs, with the budgets for them still growing over time as the “cuts” only come in the rate of growth.
On top of that, the cuts would not need to take effect immediately on March 1. Congress and the White House still have time to find smarter ways to impose the spending cuts, and perhaps close some tax loopholes. The deadline is self-imposed and hence any damage to the economy would be self-inflicted.
Still, practically every agency is warning about dire consequences. Those include food safety inspectors cutting back on inspections and endangering the food supply, airport security personnel layoffs and furloughs that would lead to frustratingly longer lines at the airport and more missed flights, national parks being closed, school children denied lunches, families receiving less money for food stamps, senior citizens centers being closed, and so on. Defense Department officials have warned about a “hollowed out” military and a decreased level of readiness to deal with terrorists abroad. The White House has also issued a state-by-state report on the impact to put more pressure on lawmakers from their constituents and fellow politicians back home to do something about the looming cuts.
The National Treasury Employees Union recently surveyed its members and they noted that the budget cuts are already having an impact on tax administration. According to a report issued Tuesday by the NTEU, employees pointed to the impact of recent budget cuts and the federal employee pay freeze at the Internal Revenue Service. They noted that many cases are not being assigned as there is no one to work on them. Money is not being collected because there are not enough revenue officers or Automated Collection System employees.
Even the IRS’s vaunted crackdown on identity theft this tax season could be endangered. “We are cutting back on identity theft issues and leaving those cases until after filing season,” said one respondent to the NTEU survey.
“The taxpayers complain about long wait times on hold, often an hour or more,” said another response.
If the 5 percent cuts on the IRS from budget sequestration are imposed, the survey respondents predicted that people would not get their refunds and America would not collect on taxes owed. Identity theft cases would also take longer to resolve.
“I currently have a large inventory of ID theft cases, some of which are over 600 days old,” said one respondent. “I am sure I am not the exception.”
Meanwhile, Congress appears to be responding to the sequester at its usual leisurely pace. With another crisis looming next month over the continuing resolution to keep the government from shutting down altogether, lawmakers have apparently decided to conserve their energy for the next budget battle ahead.