For all the talk of the “fiscal cliff” or “Taxmageddon,” precious little attention has been paid to one element of it – the automatic cuts, not to defense, but to the discretionary budget. Republicans – and the Defense Department – have been quick to denounce the defense cuts and look for a replacement plan. That sense of urgency has not been there on the discretionary side. And yet, those cuts would be just as debilitating, if not more so, in the near term.
In a paper for the Center for American Progress, Scott Lilly looks at the “swiftly ticking time bomb” that is the discretionary trigger. First of all, he finds that many contractors have already begun planning their budgets as if the cuts will happen, which will dampen spending at the end of the current fiscal year, starting in just a couple weeks, on July 1. He adds that the threat made by defense contractors also applies to the discretionary side:
Sequestration will cut government contracts with private industry in the coming year by about 10 percent, or $50 billion. Problem is, the contractors do not know which $50 billion of the approximately $530 billion the government spends on contract each year will be cut. That is a real problem because they are required by federal law to send layoff notices to any employee that is removed from their payroll at least 60 days, and in some states 90 days before the layoff occurs. Most will probably find that the judicious course is to send such notices to any employee that might be affected, and that could be most of the workforce of many contractors.
If contractors decide to notify half their employees of possible layoffs, it will mean about 3 million notices going out in September and October—hardly a good approach to strengthening consumer demand in a weak economy.
Lilly explains that the way most government agencies will react to the slashes to their budget will be through furloughs of up to six weeks. Beginning in January, those could happen at any time, and basically represent a pay cut of about 12-15% for those federal employees. That would happen on a rolling basis, and would be likely to cut consumer spending, especially in areas with a high concentration of federal workers, throughout 2013.
But the worst consequence comes from the areas where the federal budget intersects with the private economy. To take just one example:
Sequestration would cut about $1.5 billion from the Federal Aviation Administration budget, including possibly more than $900 million from the salaries of air traffic controllers. That would require a 10 percent to 12 percent cut in hours worked by controllers, forcing some reduction in takeoffs and landings. Currently, controllers manage airspace containing about 87,000 flights a day. It would be reasonable to expect a 10 percent reduction in hours worked to result in the cancellation or as many as 5,000 flights per day. How would that affect commercial airlines? Package delivery services such as FedEx or UPS? Or businesses whose sales forces rely heavily on air travel?
Lilly lists similar issues for food inspection, visas, FDA clinical trials, and more.
I could see why you would take a deep breath and potentially let this happen on the defense side, as the one chance to take a big swing at the military budget in a way where you need 60 votes in the Senate to overturn it. But it makes no sense to extend that to the discretionary budget. Those programs are often already underfunded – the country is not teeming with food inspectors – and hacking at them further will cause unnecessary disruptions and have a significant economic impact. These knock-on effects may not be picked up by all the forecasts that are already predicting dire scenarios for the economy. And it feeds into a narrative of government not working that serves the interests of conservatives. We already know from Europe how austerity can hit an economy still in the nascent stages of recovery. That’s coming to our shores in a little over six months unless we do something about it.
Be sure to also read Lilly’sestimate of how the automatic cuts would work.
UPDATE: Patty Murray has an amendment to the farm bill that will commission a study to look into the effects of the trigger cuts at all levels of government. We already have that, courtesy Scott Lilly and CAP.




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Looks like everyone in Washington is a Keynesian, at least when it comes to our War Machine.
Can you tell me what entitlement spending is?
” Extremism in the defense of MIC, the 1%ers, the PIC and the status quo is no vice. ” The U.S. Establishment. That is the message being heard loudly and clearly by the 20 million unemployed and underemployed in our troubled country. Tax cuts and credits for businesses who promise slave wages for jobs that promise poverty, not opportunity. No healthcare for 50 million. And with the MSM pumping out b.s. faster and faster Lily Tomlin’s refrain, ” No matter how cynical I get, I just can’t keep up ” is the only antidote for most.
Ahh, the “balanced” approach. The defense contractors lose a little profit, rich people give up another night or two in a $50,000 hotel resort, middle class people give up lving in homes they own, while poor people give up that *eating* habit they have.
That seems “fair”. /snark.
-stewartm
One of the most disturbing aspects of all this talk of a “fiscal cliff” is that it seems that some on the left have bought into the frame of the “phoney crisis.” I, for one, am at a loss to understand the concern that money (which is going to the “Race to the Top” program–O’s and Arnie Duncan’s program to gut public education), might be cut.
And, the cuts to discretionary and defense spending, of course, were of the Democrats own making, in order to pressure Republicans into striking the “Grand Bargain” that the Obama administration so greatly desires (to eviscerate the social safety net). I, too, would like to know which “reductions in entitlement spending” that alan1tx would favor.
I will provide a link after my “signature” to the Bowles-Simpson fiscal commission report that details the proposed cuts/revenue increases. James Galbraith concurs that the cuts in Social Security amount to a 35% cut in monthly benefits for some beneficiaries, according to the proposed reforms. He did so in an interview with Sam Seder in the winter of 2011. Since I am not a “member” of Sam’s show, I can no longer view the archives and link it to this post. Dr. Galbraith is factoring in not only the price-indexing (change from wage indexing), commonly referred to as “means testing,” [or now, according to Alan Simpson--to further deceive folks into thinking that the cuts apply ONLY TO upper income Americans-- affluence testing], but it includes the effect that raising the full retirement age to 69 years of age would have, and that the change in the CPI-Index (to a less generous one) would have on Social Security benefits. (Please excuse the run-on sentence, etc.).
I will soon post the video (Washington Journal, C-Span) of my conversation with Dr. Alice Rivlin on this topic, last spring. (I am still trying to figure out how to link to the “isolated” 5-minute segment of our conversation.) At no point did Dr. Rivlin dispute any of my assertions, including the one that the cuts were “draconian.”
Thanks for your question, KrisAinTX.
Blue
Geithner Says Fiscal Debate Began, Will End With Simpson-Bowles [sic]
The Moment of Truth, December 2010
http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf
Maybe we could use 350 or so billion a year that the military wastes on building green houses and updating our water infrastructure.
On second thought let’s just keep wasting it blowing up things in deserts half way around the world.
Sorry-Geitner, should read “Geithner.”
Blue
The U.S. budget is divided into two parts: Discretionary spending (spending that is negotiated between the congress and the president) and Mandatory spending (spending that is required by existing law).
Most social programs are part of the Mandatory portion of the budget because laws exist that mandate a certain level of spending depending on how many people are “entitled” to receive benefits under these programs – therefore the term “entitlements.” Individuals and families are entitled to receive benefits under these programs either because of low income (food stamps, Medicaid, unemployment benefits, etc.) or because recipients have paid into the programs in the past in order to receive current benefits (Medicare, Social Security). Program costs for those entitled to receive benefits because of low incomes are generally shared between the federal government and the states; Medicare and Social Security benefits are paid entirely by the federal government.
So when politicians talk about cutting entitlement spending, they’re talking about changing the laws that define the level of spending on programs that help individuals and families rather than businesses.
Son of a bitch. Ya’ know, for 200 years, we were doin’ pretty good. I suppose everything has an expiration date.
Shame that “Aztec end of the World thing” is off the table. 2013 looks kinda bleak.
Where you been hiding Sue???
We need some level heads around here. In fact, we need 537 of ‘em.
Best to ask Scott Lilly of the Center for American Progress. It’s his quote from the linked article.
oh gee, it seems the cuts are happening now, if Geithner is losing some letters.
I’ve been visiting a couple pals who are lucky enough to have luxury condos (one in Costa Rica, one in Palm Springs), which means I’ve been spending quite a bit of time at the beach or the pool and eating and drinking and being merry. Fun times are over for the time being, though. Duties call.
You’re absolutely correct that we need 537 level heads. Alas, we’re stuck with “leaders” that are determined to show their collective ass.
yes and can someone tell me what economy is “in the nascent stages of recovery”?? not the US economy. and not any European economy, unless its Germany, who are not prescribing austerity for themselves.
alan1tx–
Checked out the link, don’t see where he clarifies. Not tryin’ to pick on you. Noticed the other day that you seemed to support (my impression) Bowles-Simpson; and, therefore, I presume, their proposed cuts. Which, you have a right to do, of course.
I just hope that you’ve taken time to read The Moment of Truth. Social Security cuts will be draconian, for many Americans.
Blue
The Moment of Truth (PDF), Bowles-Simpson Fiscal Commission
http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf
SueDe–
Good and concise explanation of discretionary vs mandatory spending.
Blue
From MSNBC, ‘Dismal’ Prospects: 1 in 2 Americans Are Now Poor Or Low Income
I didn’t see a clarification either.
I did find MOT, but it’s not a pamphlet.
It’s going to take me a while to get through it. It starts off level handed enough.