US: The Pruning Strategy

A program of drastic cuts came into effect in the U.S. on March 1 because Democrats and Republicans failed to come to an agreement on the budget. Military and social expenditures are its prime targets.

Playing with fire

After narrowly avoiding the fiscal cliff at the beginning of the year, the U.S. has been hit hard by the sequester, a spending freeze, which came into effect on March 1. The government will cut public spending by $85 billion during fiscal year 2013 and by $1 trillion over the next ten years if no agreement is reached.

In 2011, the threat of this brutal mechanism prompted Democrats and Republicans to reach an agreement and raise the debt ceiling through tough last-minute negotiations.

At the time, no one had imagined that these cuts, nearly half of which affect the defense budget, would roll in. Alas, the unbelievable poker game of lies persisted and the worst became a reality. Before the fateful March 1, President Obama painted an apocalyptic picture of the possible consequences of the sequester, including reduced work schedules for 800,000 civil servants at the Pentagon, dismissal of the mentally ill and teachers and longer lines at customs in airports.

Warning

In fact, none of this has happened, nor should it happen in the coming months. Thirty days notice is required to implement reduced work schedules, given that government agencies have the option of transferring the cuts to other expenditure items. States like Virginia with large numbers of civil servants will certainly suffer the brunt of the reductions, but these are a drop of water (2.4 percent of $3.55 trillion) in the sea of the federal budget.

In short, the consequences of the sequester will be gradual but real nonetheless. Unless there is an unlikely agreement between Republicans and Democrats, 750,000 jobs will be lost in 2013, according to the Congressional Budget Office. Even if the cuts do not touch major social programs, such as Medicaid or the Supplemental Nutrition Assistance Program, the most vulnerable Americans will pay the price nonetheless. The unemployed may well see their benefits reduced by 11 percent after six months. Benefits for veterans and children with disabilities, some housing assistance and vocational training, among others, may also be affected.

Embarrassing

Obama believed that Republicans would eventually compromise to preserve the sacrosanct defense budget. He miscalculated and finds himself in the embarrassing position of having declared “Fire!” and must now mitigate the damage and reassure Americans, all while increasing the pressure on Republicans to return to the negotiation table. At the beginning of his second term in office, he risks political pitfalls, particularly because of his ambitious reform programs on gun control, immigration and environmental protection.

Conversely, these budgetary developments have allowed Republicans to strengthen their ranks. By refusing Obama’s proposal to evade the sequester through $600 million in new taxes, John Boehner, speaker of the House of Representatives, has galvanized his party’s base, already traumatized by the fiscal cliff. Let us recall that Republicans had to agree to a $650 billion increase in taxes on higher incomes.

In an existential crisis since Mitt Romney’s presidential defeat, the Grand Old Party has done little more than fight against big government and fight tax increases so as to not lose touch with a population now leaning to the left on many issues, including gay marriage and immigration.

Budget issues will dominate the year. At the end of March the threat of a government shutdown will rattle Congress. Further negotiations on the debt ceiling are imminent. The sequester will have been but a taste of things to come – I am not sure that Americans will opt for more.