A decision by Congress to allow the next round of across-the-board spending cuts to take effect could cost the economy as many as 1.6 million jobs by late next year, according to a new analysis by the non-partisan Congressional Budget Office.
There are growing signs that Congress is sliding toward a second year of sequester beginning shortly after Oct. 1, the start of the new fiscal year. The same political gridlock that set off the decade-long sequestration earlier this year has only worsened in recent months.
Democrats seized on the CBO analysis Thursday afternoon to renew their demand that congressional Republicans come to the bargaining table to work out a budget deal that would blunt or eliminate the sequester law, which was designed to reduce spending by $1.2 trillion over the coming decade.
House Republican leaders have refused to enter into negotiations with Senate Democrats over a compromise budget until the White House and Democratic leaders abandon their call for a second round of higher taxes on the wealthy to help achieve long term deficit reduction.
“This report puts a clear price on failure to replace the across-the-board cuts in the sequester: up to 1.6 million fewer jobs by the end of FY 2014,” said Rep. Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee who commissioned the CBO analysis. “While we’ve made important economic progress in the last few years, it is indefensible that Congress would impose self-inflicted wounds on our still-recovering economy – especially while so many families are still struggling to make ends meet.”
CBO Director Douglas Elmendorf cautioned in a letter to Van Hollen that cancelation of the sequester would add to the nation’s debt and might have longer term adverse effects on the economy.
“Although output would be greater and employment higher in the next few years if the spending reductions under current law were reversed, that policy would lead to greater federal debt, which would eventually reduce the nation’s output and income below what would occur under current law,” Elmendorf wrote.
“Moreover, boosting debt above the amounts projected under current law would diminish policymakers’ ability to use tax and spending policies to respond to unexpected future challenges and would increase the risk of a fiscal crisis (in which the government would lose
the ability to borrow money at affordable interest rates),” he said.
The automatic cuts kicked in last October, after congressional leaders and the White House were unable to agree on alternative cuts and tax increases to achieve tough spending targets mandated by the Budget Control Act – the law passed in the summer of 2011 to bring the last debt ceiling crisis to an end.
Since then, Democrats and Republicans have proven incapable of agreeing to the basic contours for a fiscal 2014 budget, let alone a new debt ceiling that will be needed by late this fall to prevent a first-ever default on U.S. debt. The Department of Defense and other federal agencies have had to absorb about $90 billion of discretionary spending savings this year, and would have to make about the same amount of cuts next year unless Congress and the White House agree to somehow turn off the sequester .
By canceling the automatic spending reductions this summer, as Van Hollen and other House and Senate Democrats favor, Congress would boost government spending relative to the current law by $14 billion for the remainder of fiscal 2013 and by $90 billion in fiscal 2014, according to the new CBO analysis. Government outlays would rise by an additional $62 billion in subsequent years.
Those changes would increase the level of inflation-adjusted gross domestic product by 0.7 percent and increase the level of employment by 900,000 in the third quarter of calendar 2014 relative to the levels projected under current law, according to the CBO. Real GDP could range between two-tenths of one percent to 1.3 percent higher if the sequester were called off. That would mean there would be 300,000 to 1.6 million more jobs than under current law, according to the analysis.
“This report makes it even clearer that we need to replace sequestration as quickly as possible,” said Senate Budget Committee Chairwoman Patty Murray, a Washington State Democrat. “It’s hurting our families, our national security, and our economic recovery—and I urge Republicans to join us in a budget conference so we can work together to end these automatic cuts before they do even more damage.”
Murray spoke on the Senate floor about the impact of sequestration in Washington state, including the brain surgeries at military hospitals that are being delayed because of cuts from sequestration.
Earlier this week, Murray held a hearing on the adverse impact of the sequester on the Pentagon and civilian employees who are facing unpaid furloughs. With nearly one in two federal workers facing enforced unpaid leaves of absence to help meet stringent deficit reduction mandated by sequestration, about 6,000 employees have filed appeals with the Merit Systems Protection Board to block the furloughs or recover lost pay. Meanwhile, labor unions are galvanizing public employees across the country to fight the sequester and are taking their case to Capitol Hill.