Who will the 'sequester' budget cuts hurt?
- 28 February 2013
- From the section Magazine
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.
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.
Three to six months
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.
Six to 12 months
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.