Will The Sequester Hurt Economic Growth?

Will The Sequester Help The Economy?

Who Is Responsible For The Sequester?

Is The Sequester The Only Opportunity For Spending Cuts?

MYTH: The Sequester Is Too Small To Harm The Economy

WSJ: White House's Claims Of Harm To The Economy Are “Disingenuous.” A Wall Street Journal editorial titled “The Unscary Sequester” argued that President Obama's claim that the sequester would hurt economic growth was “disingenuous.” From The Wall Street Journal:

The most disingenuous White House claim is that the sequester will hurt the economy. Reality check: The cuts amount to about 0.5% of GDP. The theory that any and all government spending is “stimulus” has been put to the test over the last five years, and the result has been the weakest recovery in 75 years and trillion-dollar annual deficits. [The Wall Street Journal, 2/6/2013]

Fox's Scott Suggests Sequester Is Too Small To Matter. On the February 14 edition of Fox News' Happening Now, co-host Jon Scott implied that the sequester would not have a large impact because it “doesn't seem like it's a very deep cut given the size of our budget.” [Fox News, Happening Now, 2/14/2013]

WSJ's Moore: Highlighting Effects Of Sequester Is “The Old 'Washington Monument' Ploy.” In an opinion piece, Wall Street Journal editorial board member Stephen Moore suggested that warnings about the negative effects of sequestration were disingenuous, mainly because the cuts only amount to 5 percent of domestic spending. From The Wall Street Journal:

Environmental groups, the welfare lobby and other big-government organizations are preparing a media blitz to warn Americans of the supposed catastrophic effects of the 5% cut in domestic spending.

[...]

This is, of course, the old “Washington Monument” ploy. Whenever agencies are asked by Congress to pinch pennies, they shutter the most visible and popular programs in order to build voter opposition to the cuts. This tactic was tried by some agencies the last time Washington was under a sequester order in 1987, but the Reagan White House ordered agencies to comply. What's coming from the Obama administration is the opposite of good government, which the party of big government says it believes in and can deliver. [The Wall Street Journal, 2/11/2013]

MYTH: The Sequester Will Help The Economy

AEI's John Makin: Sequester Will Lead To Greater Private Investment. In a Wall Street Journal op-ed, American Enterprise Institute's John Makin argued that while the sequester may temporarily harm growth, it will help to spur private sector investment in the long-run. From The Wall Street Journal:

The sequester, along with the tax increases, would slow growth for a quarter or two, perhaps to 1%. But thereafter the slower growth in government debt levels and less uncertainty attached to fiscal policy would lead to greater private investment, increased economic growth and substantially reduced deficits. [The Wall Street Journal, 2/13/2013]

WSJ: “Sequester Will Help The Economy.” A February 6 Wall Street Journal editorial claimed that allowing the sequester to happen “will help the economy by leaving more capital for private investment.”

CNBC's Kudlow: Sequester Will Grow Private Economy. In his column on CNBC.com, CNBC host Larry Kudlow claimed that the drop in GDP in the fourth quarter of 2012 was evidence that if government spending were cut, the private economy would thrive. From the piece:

This is an important point in terms of the upcoming spending sequester. Lower federal spending, limited government, and a smaller spending-to-GDP ratio will be good for growth. The military spending plunge will not likely be repeated. But by keeping resources in private hands, rather than transferring them to the inefficient government sector, the spending sequester is actually pro-growth. (CNBC.com, 1/30/2013]

FACT: Sequester Will Cut Growth And Lead To Job Losses

Congressional Budget Office: Fiscal Tightening Will Halve Growth In 2013. A MarketWatch report on a recently released Congressional Budget Office study noted that growth in 2013 would be “1.5 percentage points faster” if not for the sequester. From MarketWatch:

U.S. economic growth in 2013 will be 1.4%, the Congressional Budget Office estimated on Tuesday, up from a previously estimated decline of 0.5% pinned on the so-called fiscal cliff. CBO said however that growth would be about 1.5 percentage points faster in 2013 if not for fiscal tightening including the so-called budget sequester. [MarketWatch, 2/5/2013]

Bipartisan Policy Center: Sequester Will Cost One Million Jobs. In a post on the Bipartisan Policy Center's blog, Steve Bell, senior director of economic policy, estimated that allowing the sequester to occur as is would lead to the loss of one million jobs. From the post:

Our estimate of approximately one million lost jobs due to sequester remains our base case if a full sequester occurs as scheduled on March 1. [Bipartisan Policy Center, 1/29/2013]

Center On Budget And Policy Priorities: “Dollar-For-Dollar” Sequestration Will Constrain Growth The Most. In a blog post explaining fiscal contributors to lags in economic growth, the Center on Budget and Policy Priorities noted that while sequestration has an overall small impact on the budget deficit, it is the most effective policy for restraining growth:

CBO estimates that the fiscal restraint still in effect after the fiscal cliff deal will subtract 1½ percentage points from economic growth this year.  Three things account for the bulk of that restraint:  the automatic cuts in federal spending (“sequestration”) due to kick in March 1, the expiration of the 2009 payroll tax cut, and expiration of some of President Bush's tax cuts for wealthy taxpayers.

Although sequestration does the least of these three policies to cut the budget deficit this year, dollar-for-dollar it restrains growth and job creation the most.  In fact, CBO estimates that it accounts for roughly the same overall drag on growth as the combined tax changes.  Moreover, most of the drag from the tax changes arises from the 2 percentage point increase in the payroll tax; dollar-for-dollar, higher tax rates on the very affluent do little to hamper the economic recovery. [Center on Budget and Policy Priorities, 2/12/13]

Krugman: Cutting Spending Won't Spur Private Investment. Reacting to the State of the Union response by Sen. Marco Rubio (R-FL), Nobel Prize winning economist Paul Krugman explained that cutting government spending - just like the sequester - would not lead to an inflow of private investment. Krugman explains:

I know where he gets this stuff: it's what the Heritage Foundation guys were saying four years ago. It was obviously wrong even then: we have an excess of desired savings over desired investment -- that's why the economy is depressed! -- so it makes no sense to assume that government borrowing must crowd out private investment dollar for dollar, or indeed at all. [The New York Times, 2/14/2013, emphasis added]

To read more about the negative economic effects of the sequester, click here.

FACT: Sequestration Has Already Had Negative Effects

Federal Times: NIH Scaling Back Grants Over Threat Of Sequestration. The Federal Times reported that just the threat of sequestration taking effect has already decreased the number of grants being approved by the National Institute of Health, hurting potential medial research:

Sequestration fears have driven the National Institutes of Health's grant approval rate down to historic lows, NIH Director Dr. Frederick Collins said Friday.

Because NIH has had to hold back grant money to prepare for possible sequestration, it is now approving 17 percent of grant applications. NIH usually approves grants for 25 percent to 35 percent of the applications it receives, Collins said. [Federal Times, 2/8/2013]

Federal Departments Already Preparing For Sequestration By Anticipating Cuts. In an article titled “The Sequester Will Be A Shellacking For Consumers And Businesses,” The Fiscal Times reported that federal agencies are already taking steps to prepare for sequestration, with the Pentagon suspending contracts and new hires. From The Fiscal Times:

Acting White House Budget Director Jeffrey Zients warned in a Jan. 4 memorandum that federal agencies this time will likely need to furlough “hundreds of thousands of employees” while reducing services - such as food inspections, air travel safety, prison security, border patrol and other “mission-critical” activities.

The Department of Defense, the Interior Department and other major federal agencies have put out similar warnings to their employees and contractors, and the Pentagon began cutting back on spending and putting off new contracts and hiring in anticipation of the deep cuts.  Government and industry experts predict that sequestration could cost the economy at least one million government and private sector jobs in the coming year. [The Fiscal Times, 2/8/2013]

Washington Post: Preparation For Sequester May Be Responsible For GDP Drop. Reporting on the fourth quarter 2012 drop in GDP, Brad Plumer of Washington Post's Wonkblog argued that a main component of the drop was a decline in Pentagon spending, which may have come in preparation for the sequester:

Another possibility, as Michael O'Hanlon of Brookings told me, is that the Pentagon has been preparing for the sequester budget cuts that had originally been scheduled for January. (They've since been pushed back until March.) The Defense Department was facing the prospect of losing money that had already been budgeted over multiple years but hadn't been spent. That led to a big spending spree in the third quarter, which was followed, inevitably, by a drought in outlays in the October through December. [The Washington Post , 1/30/2013]

MYTH: Obama Is Single-Handedly Responsible For Sequester

Fox Nation Suggests Obama Pushed For Sequester. On February 6, Fox Nation promoted a CNSNews.com story on Obama's call to resolve the sequester with the headline, “Obama Seeks to Void Cuts He Signed Into Law.”

Fox's Doocy: Sequester Is An “Invention Of The White House.” During an interview with Sen. Kelly Ayotte (R-NH) on the February 6 edition of Fox & Friends, co-host Steve Doocy commented on President Obama's stance on the sequester, claiming that the automatic spending cuts were “the invention of the White House.” [Fox News, Fox & Friends, 2/6/2013]

Fox's Stirewalt Tells Viewers That Sequester Was Obama's Idea.  On the February 7 edition of America Live, Fox News' Chris Stirewalt claimed that President Obama and former White House Chief of Staff Jack Lew “came up with this idea of the sequester.” [Fox News, America Live, 2/7/2013]

FACT: Sequester Was A Product Of Bipartisan Agreement

Washington Post: Sequester Was A Product Of Bipartisan Negotiations. According to The Washington Post's resident fact-checker Glenn Kessler, while the sequester may have originated in the White House, its final adoption was the result of bipartisan negotiations. From The Washington Post:

No matter who first came up with the idea, it took bipartisan votes to make it a reality. In other words, the sequester was part of a negotiation in which the two sides were haggling over an enforcement trigger that would cause pain on both sides.

[...]

In other words, Republicans cannot hide from the consequences of their own actions, especially because at the time they crowed that they had won a great victory. [The Washington Post, 2/11/2013]

Woodward: “Republicans Definitely Have A Role In This.” On the February 17 edition of Fox News Sunday, Washington Post editor Bob Woodward, who is frequently cited as the original source for placing blame for the sequester on Obama, noted that Republicans were also involved, saying, “The White House -- and they really don't want to talk about the origins of the sequester now. But the Republicans definitely have a role in this. [Fox News, Fox News Sunday, 2/17/2013, via Media Matters]

FACT: Republican Leaders Supported And Touted Sequester As Success

Boehner: Budget Control Act “A Positive Step Forward.” Following the passage of the 2011 Budget Control Act, which included the sequester, Speaker of the House John Boehner lauded the deal, touting it as “a positive step forward that begins to rein in federal spending.”

Ryan: Budget Control Act “Represents A Victory.” House Budget Committee Chairman Paul Ryan also praised the passage of the Budget Control Act, claiming:

The Budget Control Act represents a victory for those committed to controlling government spending and growing our economy. I applaud Speaker Boehner's leadership in stopping tax increases on job creators, rejecting President Obama's demands for a blank check to keep borrowing, and advancing real spending cuts and controls.

MYTH: Sequester Is The Only Opportunity For Spending Cuts

Krauthammer: Sequester Is The “One Time Republicans Can Get Cuts ... Get Them While You Can.” In an opinion article titled, “Call Obama's Sequester Bluff,” syndicated columnist and Fox contributor Charles Krauthammer urged Republicans to use sequester as a bargaining chip, claiming it is the only opportunity to exact spending cuts out of the Obama administration:

The Republicans finally have leverage. They should use it. Obama capitalized on the automaticity of the expiring Bush tax cuts to get what he wanted at the fiscal cliff -- higher tax rates. Republicans now have automaticity on their side.

If they do nothing, the $1.2 trillion in cuts go into effect. This is the one time Republicans can get cuts under an administration that has no intent of cutting anything. Get them while you can. [The Washington Post, 2/7/2013]

Forbes: “If We Do Not Cut Now, We Never Will.” In an op-ed piece responding to Weekly Standard editor Bill Kristol's call for Republicans to compromise over the sequester, Forbes contributor Paul Roderick Gregory argued that Republicans should not bend on the sequester. From Forbes:

Does Kristol not understand that Obama will fight to the end against spending cuts (except in defense) using his considerable demagoguery skills, knowing Republicans cannot withstand the pressure. In the end, we'll get more, not less, spending, and Obama will hand off to his successor a debt with which we cannot live. If we do not cut now, we never will. [Forbes, 2/9/2013]

FACT: Congress Has Already Approved Large Spending Cuts

Center On Budget And Policy Priorities: Congress Has Already Cut Spending By $1.5 Trillion. In a November report outlining cuts to discretionary funding, the Center on Budget and Policy Priorities (CBPP) found that in 2011, Congress reduced budget expenditures by $1.5 trillion over 10 years. CBPP also noted that this figure does not include potential sequestration cuts built into the Budget Control Act. From the report:

The $1.5 trillion in budget reductions in discretionary programs that policymakers have enacted reflect two actions that policymakers took last year.  First, in the spring of 2011, Congress and the President cut discretionary funding for fiscal year 2011 below the 2010 inflation-adjusted level, and thereby reduced the base on which discretionary funding levels for future years are built.  Second, in August 2011, they reduced future-year funding substantially by enacting the BCA, which established statutory caps on total discretionary funding and separate “sub-caps” on funding for defense and non-defense (i.e., domestic and international) discretionary programs for 2012 through 2021. [Center on Budget and Policy Priorities, 11/8/2012]

After Passage Of ATRA And BCA, Spending Cuts Outweigh Revenue Increases. In an analysis of the American Taxpayer Relief Act of 2012, the Center for American Progress noted that revenue from changes in the tax code will amount to about $617 billion from 2013 to 2022, far lower than the $1.5 trillion in spending cuts enacted by Congress in 2011.