A Compromise in the Making?
Issue: $1.2 trillion of automatic spending cuts on programs such as education and defense over the next 10 years beginning in FY 2013
Impact: Just over a year ago, Congress could not come to terms on reducing the federal budget deficit. Upon passage of the “Budget Control Act of 2011” they created a “super-committee” comprised of bi-partisan Congressional representation with a goal to present a plan to Congress to issue an additional $1.5 trillion in spending cuts over a ten-year period. This was on top of an already passed $917 billion cut passed in the bill. This “super-committee” failed miserably, stating that the group could not come to a consensus on how to make these additional cuts. This leads us to where we are today –a major fear tactic ($1.2 trillion in spending cuts – primarily national defense and domestic programs effective for FY 2013 or as early as January 2, 2013) never meant to become reality – is looking more and more realistic each day.
The fact of the matter is that government spending is out of control and a compromise between raising taxes and reducing spending will be required to rebuild the American economy. We can’t continue down the path of growing the deficit and relying on support from other countries.
What are candidates proposing in regards to balancing a budget and how will that affect your business? Last week we began to look at what the expiring tax cuts would do, and now what will the $1.2 trillion in spending cuts do to the economy and job growth? A report published by the Americans for Progress in June states:
“In the end we know that we have more than $500 billion in contracts and that sequestration will cancel or reduce about $50 billion of them. Beyond that it will take many months of painstaking review to know how deeply any one contract is likely to be cut.
The Office of Management and Budget recently estimated that each $92,000 in federal expenditures creates one job. If that math is applied to the contract budget, then the $530 billion we were reported to have spent on contracts last year would have created about 5.8 million jobs. Sequestration could be expected to result in layoffs or reductions in force for about half a million of those employees. But because of the uncertainty that we are likely to continue to face with respect to which contract will be affected and by how much, layoff notices may likely be sent to several times that number of people.”
While the concern of this sequestration issue may not be directly related to your business- the spending cuts will trickle down and means there will be less jobs to bid and work on (a whole new issue dealing with prevailing wage!), a horrifying outlook for job growth and the economy in general – which will hurt your business no matter what. The fact of the matter is – we need candidates who will continue to stand on their principles and what they know is right – a focus on the economy, job growth, and a balanced budget will set a successful path for your business and the country in general.
Understand the programs affected by sequestration:
The Center on Budget and Policy Priorities released this general breakdown of the programs affected by sequestration:
Broadly speaking, for 2013 the across-the-board cuts will mean about an 8.4 percent cut in most affected non-defense discretionary programs, a 7.5 percent cut in affected defense programs, an 8.0 percent cut in affected mandatory programs other than Medicare, and a 2.0 percent cut in Medicare provider payments. For 2014 through 2021, the Medicare cut will remain at 2 percent while the percentage cuts in other programs will gradually shrink. These estimates — which are revised from estimates in our December 2, 2011, analysis — take into account new CBO budget projections and the details of the President’s funding requests for 2013.