Office of Management and Budget report outlines extent of $85bn cuts triggered by failure to reach deal by Friday deadline
The scale and reach of the sequestration spending cuts that will hit the US has been laid bare by government officials who warn that the order for the cuts, which was signed by president Barack Obama late Friday, would be “deeply destructive” to the economy and national security.
The Office of Management and Budget has compiled an official report on the breakdown of the $85bn cuts package, which was triggered by a failure to reach a broader political consensus on deficit reduction. The document reveals a detailed list of how the cuts will hurt spending at every level of government. It shows that research spending at the Department of Agriculture will be hit by $55m of cuts, while $150m will go from the immigration system at the Department of Homeland Security.
The long list of cuts includes relatively smaller sums – like $1m being lost for a dam project on the Colorado River and $6m cut from the Leaking Underground Storage Tank Trust Fund – to larger budgetary swipes, including $30m being removed from cultural exchange programs at the State Department. The Pentagon faces widespread cuts. It is losing some $2.6bn from its Defense Health Program and $3.4bn dollars from the navy’s operation and maintenance budget. The Army faces losing $4.6bn from its equivalent budget.
The OMB issued a stark analysis of the impact of the cuts in a letter to Congress that was issued with the report and signed by Jeffrey Zients, deputy director for management. “The cuts required by sequestration will be deeply destructive to national security, domestic investments and core government functions,” Zients wrote.
On Saturday, Obama warned of a “ripple effect” through the American economy that would cost hundreds of thousands of jobs. Obama said the sequestration was “not smart”. “The pain will be real,” he said in his weekly address. “Many middle-class families will have their lives disrupted in a significant way.”
He added that up to 750,000 jobs could be lost and a half per cent knocked off America’s economic growth this year. “This will cause a ripple effect across the economy. Businesses will suffer because customers will have less money to spend… These cuts are not smart. They will hurt our economy and cost us jobs.”
The sequester originates in a political crisis in 2011, when debates over deficit reduction almost saw the American government default on its debt payments. In order to avert that crisis Democrats and Republicans agreed that unless they struck a deal on shrinking the country’s debt, cuts would be made to federal spending. The idea was that the prospect of cuts to social services would motivate the Democrats and hurting military spending would do the same for Republicans.
Instead, despite Friday’s deadline no grand bargain was struck and the cuts – which neither side had intended to actually happen – are now coming into force. Over the next 10 years they will represent $1.2tn dollars of slashed spending.
The hardest hit part of the government will be the Pentagon, which must dig out some $40bn of cuts between now and September – about 9% of its budget. Defence chiefs have said that the move will delay deployments, such as a recent move of an aircraft carrier to the Persian Gulf, and hurt national security.
But almost every government department, from aviation to the parks service, will be hit, with cuts amounting to about 5% of overall budgets. Only Medicaid and welfare benefits such as food stamps are exempted. The Federal Aviation Authority has said that it will have to close scores of air traffic control towers and the National Labor Relations Boards has given staff 30 days of notice that they could be suspended from their jobs. Over the next few weeks more and more such letters will go out, threatening school services and the smooth running of scores of other government functions.
In his speech, Obama slammed Republicans as being to blame for inaction, saying that their hostility to any sort of extra tax revenues being generated from rich Americans was the root cause of the problem. In recent weeks, and since his victory over Republican challenger Mitt Romney in last year’s presidential election, Obama has not shied away from attacking his opponents as defenders only of the wealthy.
“It’s happening because Republicans in Congress chose this outcome over closing a single wasteful tax loophole that helps reduce the deficit. Just this week, they decided that protecting special-interest tax breaks for the well-off and well-connected is more important than protecting our military and middle-class families from these cuts,” Obama said.
But Republicans want only cuts, on welfare rather than defence, and have insisted on no new taxes. The Republican House speaker, John Boehner, pictured, was adamant at the end of the White House talks Friday that he would not contemplate any new taxes. “The discussion about revenue is over,” Boehner said. That hard line is popular with his party’s right-wing base but has left the party vulnerable to being attacked as being too entrenched in its ideology – especially after Obama’s resounding election victory.
In seeking to lay the blame for the sequester at the door of the Republicans, the Obama administration has run a carefully orchestrated image campaign aimed at focusing on the impact on middle-class American workers and their families. Obama continued that theme on Saturday, saying Republican leaders were out of touch with ordinary people and their own voters. “We just need Republicans in Congress to catch up with their own party and the rest of the country,” he said.
But on Saturday Republicans were still standing firm. In the party’s own weekly address, the congresswoman Cathy McMorris Rodgers attacked “out-of-control government spending” and said there was no point in new taxes, as the money would just be wasted. “Instead of campaigning for higher taxes, the president should lead an effort to begin addressing our nation’s spending problem,” Rodgers said.
But for many observers the fiasco of the sequestration – which has effectively meant both parties are implementing a policy that neither wants and each thinks is damaging – has left many complaining about a broader American political dysfunction. Yet the sequester is just one of several rolling crises that are threatening the smooth running of the world’s biggest economy that is still stuttering to recover from recession.
If Congress does not reach an agreement on a budget for this year by 27 March, the federal government faces the prospect of shutdown. Soon after that, Congress must approve an increase in the federal debt limit: the same move that two years ago created gridlock in Washington and resulted in the sequester. The House of the Representatives is due to vote next week on a deal to prevent a federal shutdown but there is a risk this could end up in a new stand-off between the Republican-controlled House and the Democratic-controlled Senate.
Bill extends the borrowing limit for more than three months, but a longer term solution still needed
The House of Representatives voted on Wednesday to extend the US’s borrowing limit for more than three months as the majority of Republicans backed down from their demands for more spending cuts.
The Republican-sponsored bill still needs a Senate vote and presidential approval but is likely to receive both. Democrats said they would approve the bill without changes shortly before the vote, which passed 285-144 with 86 Democrats voting for the bill to make up for the 33 Republicans who objected.
John Boehner, Republican House speaker, included a provision in the bill that will halt Washington lawmakers’ wages if a budget plan is not passed by April 15. “It’s real simple: no budget, no pay,” said Boehner.
Jay Carney, White House spokesman, called the vote a “welcome development” but said the president would prefer a longer term solution.
The compromise avoids an impending budget crisis that Treasury secretary Timothy Geithner warned would do “irreparable” harm to the US economy. Earlier this month Geithner wrote to Congress warning that the US was close to exhausting the measures put in place to extend its borrowing capacity. The government hit its $16.4tn limit on 31 December 2012. “It must be understood that the nation’s creditworthiness is not a bargaining chip or a hostage that can be taken to advance any political agenda,” warned Geithner.
While the vote addresses immediate concerns, the vote to push off debt ceiling decisions until 18 May will not halt upcoming spending cuts or impending clashes over government spending. On 1 March, $110bn in automatic spending cuts are set to take effect. And on 27 March, a stop-gap measure financing government operations expires.
Republican conservatives are preparing for a fresh battle a the end of March. House members including former vice-presidential hopeful Michelle Bachmann who voted against the bill voiced their concerns after the decision. “Giving the president four months of unlimited borrowing authority without a cap on spending is something I cannot support,” said Bachmann.
“I could not vote for a bill that added $4tn to our national debt over the next 10 years,” said Republican congressman Jimmy Duncan of Tennessee.
Senator Rand Paul, seen as a potential presidential candidate, sharply criticised his Republican colleagues in a speech in South Carolina earlier this week saying they had “retreated” in the face of opposition.
“I saw the speaker on TV handing the newly sworn-in president a flag. I am afraid it was the white flag of surrender,” he told the audience, Politico reported.