On Friday night, the US government may slash $1.2tn from the federal budget over the next decade. Who will these cuts hurt?
Congress has until 23:59 EST on Friday (04:59 GMT on Saturday) to come up with an alternate budget plan that both Democrats and Republicans can agree on. If that fails to happen - and the consensus in Washington DC right now is that it will not - the entire country will default to what was considered a worst-case scenario. That means automatic budget cuts designed to inflict maximum pain.
Known in Washington DC jargon as the sequester, these cuts would slash $1.2tn (£791bn) from the federal budget over the next decade. They were designed to draw blood from projects valued on both sides of the aisle, and in doing so spur lawmakers to compromise on a more realistic deal.
They did not, and now the American people are stuck with harsh cuts - at least until a new law is passed.
While everyone agrees that funding is being slashed from crucial programmes, the effects of such budget butchery will not be spread evenly throughout the country.
"The overall effect is not going to be turning a light switch off" and banishing the entire US to darkness come the stroke of midnight, says Memo Diriker, director of the European-American Business Institute at Salisbury University.
Instead "it will be a slow build," he says. "If you look at the totality of the cuts, they are spread out over ten years."
Some groups will feel the pain more than others. Here is a timeline of who will get hit and when:
Those who work for defence contractors have already started to feel the effects of the sequester. "Several companies have already reduced their workforce or hiring," says Diriker.
This month, time spent by politicians trying to develop a new plan rivals time spent trying to blame the other side for the looming cuts.
Once the cuts go into action, who will be punished at the polls?
That is because defence spending could take a hit to the tune of $46bn this year and $495bn over the subsequent nine years. Companies that rely on federal defence funds are planning for the worst.
So too are some private-sector companies who are not targets of the automatic cuts but worry about their effect on the general economy.
"For people that make decisions based on projections of where the macro economy is going over the next six months to a year, they are already going to start building in the assumption that the economy is not going well," says Robert Pollin, co-director of the Political Economy Research Institute at the University of Massachusetts.
That is because the lead-up to the sequester saw flat growth in the Gross Domestic Product and unemployment figures. "We're on the edge of the recession right now," says Pollin.
The cuts - which would lead to lay-offs of federal employees, teachers, and other workers - could push the US right over that edge. In preparation, private companies may scale back hiring and expansion plans.
Federal dollars for the year have already been allocated, so social service agencies and other recipients of government money will not immediately see their budgets slashed. But once they run out of federal money, they are out. Some teachers will finish out the school year, but "come May or June, they are going to be told they're not coming back," says Diriker.
States have discretion over how they allocate money given to them by the federal government, so different programmes will run out of money at different times depending on the state.
But Diriker predicts that between now and September, programmes like Meals on Wheels, which provides food to homebound citizens, will run out of federal cash in several states.
Expect the general American economy to take a hit over the next year.
"The [Federal Reserve] itself is saying no improvement in the economy over the next 12 months," says Pollin. It is also predicted that the cuts could knock half a percentage point off the Gross Domestic Product and keep the unemployment rate between 7.3% and 7.7%.
Economic reports produced on the last day of February indicated slight growth in the economy, with more confidence in consumer spending and fewer layoffs, according to the Wall Street Journal. But the budget uncertainty has economists worried that growth will stall when the flow of federal money slows.
"That's the reality of austerity, and once that reality sets in, certainly it's not going to help move the economy forward," says Pollin.
By then, the government may come to a new agreement restoring funding to needed areas. But until then, those who depend on government funds - whether billion-dollar weapons companies or a hungry, housebound pensioner - may have to get used to doing more with less.
by bbc
Editor's note: Michael D. Tanner is a senior fellow at the Cato Institute.
(CNN) -- "The sequester is coming, the sequester is coming," cries Chicken Little, speaking of the across-the-board spending reductions set to kick in next Friday. As a result, much of the Washington establishment, politicians of both parties, and the media are bracing for the apocalypse.
Henny Penny worries about poisoned meat going uninspected, the air traffic control system shutting down, and schools being forced to close. Meanwhile Turkey Lurkey is afraid that national security is threatened because our military will be gutted. And Foxy Loxy is concerned there will be massive job losses and our economy will crash.
The reality, though, is that most of what we are being told about the sequester is just a fairy tale. Here's why:
The sequester imposes savage spending cuts
Actually, the sequester doesn't cut federal spending at all, or rather it cuts it only in the Washington sense of any reduction from projected baseline increases is a cut. In reality, even if the sequester goes through, the federal government will spend more every single year. In fact, in 2023 it will be spending $2.39 trillion more than it does today.
Become a fan of CNNOpinion
OK, but at least the reductions in projected spending are big, right?
Hardly. This year, the sequester would slow the growth in federal spending by just $85 billion, from an expected, pre-sequester budget of $3.64 trillion -- less than a 2.3% reduction. To put that in perspective, the federal government borrows $85 billion every 28 days . In fact, this actually overstates the size of this year's cuts. Because of ongoing contracts and the Byzantine labyrinth of federal budgeting, only $44 billion of that $85 billion will actually be cut from this year's budget. The rest will be cut in future years, but attributed to this year's budget. So, the real reduction in federal spending this year is just 1.2%. If the federal government can't reduce spending by less than a penny-and-a-half on the dollar without throwing us into the dark ages, something is truly wrong.
But aren't the cuts larger for domestic discretionary spending?
It is true that the cuts are not spread equally across all types of federal spending. Entitlement programs, such as Medicare, Medicaid and Social Security are generally exempt -- Grandma's Social Security check won't be cut -- meaning that discretionary spending takes a disproportionately larger hit. Still, we are talking about a reduction of less than 9%. That would leave domestic discretionary spending, after adjusting for inflation, at roughly the same level as 2009. You recall 2009, don't you? The starvation, the mass closure of our schools, the shutdown of the transportation system, the burning cities?
What about defense? Surely, the sequester guts defense
Defense does take the biggest cut under sequester, nearly 13% of planned spending. In fact, defense spending would really be cut, in the sense of actually spending less, over the next two years. Still, it would never fall below the level of spending we had as recently as 2007, a year we managed to survive without al Qaeda wading ashore in Long Beach. Beginning in 2015, defense spending would start rising again, in real terms, and would exceed current levels by 2019. Keeping all this in perspective, over the entire 10-year period covered by the sequester, defense spending would average roughly $100 billion more each year (after adjusting for inflation) than we spent at the height of the cold war.
I'm still worried about the impact on the economy. Some economists believe that the sequester will cost thousands of jobs and throw us into another recession. True or not?
The proposed spending reductions amount to less than 0.03% of our gross domestic product. If our economy can't survive spending cuts of that size, we truly are Greece. Of course, in the short term, there will be some layoffs and furloughs. This will be hard on some communities that depend heavily on government spending, and even harder on those workers directly affected. However, most of the numbers cited about the numbers of jobs at risk come from industry groups with a vested interest in making the cuts look as bad as possible.
This entire argument buys into the Keynesian conceit that government spending creates jobs over the long term. But the resources necessary to create those jobs have to be extracted from the private economy either through taxes or borrowing. That means the private sector then has fewer resources to invest in job creation. Given that the private sector generally puts those resources to a more productive use, it is likely that government spending destroys more jobs over the long run than it creates.
We can and should have a legitimate debate about the best way to cut spending. But let's not be distracted by fairy tales about how the sky is falling.
Follow us on Twitter @CNNOpinion.
Join us on Facebook/CNNOpinion.
The opinions expressed in this commentary are solely those of Michael D. Tanner.