Straight Talk on the Sequester
“[The sequester] will have devastating effects… on our economic recovery.” –Minority Whip Steny Hoyer
As usual, Washington could use some perspective on this latest end-of-days argument.
Let’s first remember what sequestration is: an across the board reduction to the growth of spending split between both defense and non-defense discretionary spending. There are thousands of budgeting accounts among federal agencies. If the sequester hits, each account will be hit with an equal, across the board 5.2 percent cut, while defense accounts will take a 7.7 percent hit. Is this the right way to cut spending? No. These were intended as placeholder spending cuts from the 2011 debt ceiling debate until Congress could agree on suitable spending cuts, which they never did. With a spending-driven debt crisis nearly upon us, the future American economy most needs us to reform our entitlement systems.
But what will the sequester actually mean for the economy?
If you only tuned in recently, you might think the Western Hemisphere will cease to exist on March 2, one day after sequestration hits. Not true.
Why?
The sequester is an $85 billion cut in a $3.6 trillion annual budget in a $16 trillion economy. That’s a small cut in a huge pie.
The economy is growing at about $630 billion per year. For the sequester to wipe out economic growth – as liberals are now implying – it would have to create roughly 7 times its size in economic impact.
Is that a realistic assumption?
By the same logic, the stimulus would’ve added an additional 5.6 trillion in GDP.
Perhaps if that had been true we would not be having this debate today.
The sequester is still a bad idea. It should be replaced. America needs a “big deal” on deficit reduction that addresses mandatory spending, not merely a drop in the bucket through across-the-board discretionary spending cuts. But how much will the sequester actually affect the economy? We will all be here on March 2nd to watch the Nationals beat the Cardinals.
