Congress has only a few weeks remaining to debate sequestration and taxes before August recess, yet agreement on these complicated looming fiscal issues is nowhere in sight. Congress is only beginning to examine the potential impacts of sequestration that would take effect in January 2013 and the little attention that has been paid to sequestration has thus far largely focused on the impact of defense cuts (see Memo, 7/6). However, efforts by a non-defense discretionary coalition and highlighting of the impact of sequestration on non-defense discretionary programs by members of Congress could change the scope of the conversation.
On July 18, the House passed H.R. 5872, the Sequestration Transparency Act of 2012, which includes language requiring the Office of Management and Budget to describe how programs, projects, and activities would be reduced under current law to achieve the sequester’s impending cuts. In June, the Senate included similar language in its Farm Bill after successful efforts by Senators Patty Murray (D-WA) and John McCain (R-AZ) to require the White House to explain the impact of sequestration on both non-defense and defense discretionary programs.
In recent months, some federal departments have provided lawmakers with information on the anticipated impacts on select programs. Most recently, the Department of Health and Human Services responded to a request from Representative Edward Markey (D-MA) to outline the potential impacts of sequestration on HHS programs. HHS reported that 2,300 research grants could be eliminated, up to 100,000 children would lose Head Start services, 12,150 fewer patients would receive benefits from the AIDS Drug Assistance Program and approximately 169,000 fewer individuals would be admitted to substance abuse programs.
Unfortunately, HUD has not released a similar set of impact estimates for its housing programs, despite requests from advocates.
A coalition of organizations representing non-defense discretionary programs delivered a letter to Congress the week of July 9, signed by nearly 3,000 organizations. The letter urges Congress take a “balanced approach to deficit reduction that does not include further cuts to NDD programs, which have already done their part to reduce the deficit.”
In a letter marking the first united voice for organizations representing non defense discretionary spending, the organizations write,
“NDD programs are core functions government provides for the benefit of all, including medical and scientific research; education and job training; infrastructure; public safety and law enforcement; public health; weather monitoring and environmental protection; natural and cultural resources; housing and social services; and international relations. Every day these programs support economic growth and strengthen the safety and security of every American in every state and community across the nation.”
A July 17 analysis by Stephen Fuller, Professor and Director of the Center for Regional Analysis of the George Mason University (GMU), “The Economic Impact of the Budget Control Act of 2011 on DOD and non-DOD Agencies,” claims that the sequester would have “significant negative impacts on the U.S. economy in 2013.” According to the report, over 2.1 million jobs will be lost during FY12 and FY13 due to spending reductions. Job loss will be evenly split between defense and non-defense related employment. “Unemployment will increase by as much as 1.5 percentage points raising the current national rate above 9 percent,” according to the report. Additionally, the authors report that the spending cuts would reduce gross domestic product (GDP) by $215 billion, and decrease worker earnings by $109 billion.
As Congress begins to consider the impact of deep cuts to discretionary spending in 2013, lawmakers are also considering the impact of allowing the Bush-era tax cuts to expire at the end of 2012. Federal Reserve Chair Ben Bernanke testified before both the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs during the week of July 15. In his testimony to both committees, Mr. Bernanke stressed that the nation will face economic hardship if the tax cuts set to expire at the end of the year occur at the same time as spending cuts scheduled for January 2013. These fiscal changes, along with other policies set to expire or change at the end of 2012, are commonly referred to as the “fiscal cliff.”
The Committee for a Responsible Federal Budget (CRFB) also issued a revised report on the fiscal cliff the week of July 15. CRFB claims that simultaneously allowing tax cuts to expire and implementing spending cuts would create a “large fiscal cliff,” but that continuing the tax cuts and cancelling the sequester would increase the deficit substantially. The Committee concludes that the lawmakers should devise a comprehensive plan to space these two fiscal changes apart in order to give the economy more time to recover.
In contrast, the Center on Budget and Policy Priorities (CBPP) believes that the country would experience not a “fiscal cliff,” but a “fiscal slope,” in January 2013. CBPP claims that lawmakers still have time to devise a comprehensive plan in order to avoid economic hardship rather than simply extend tax cuts in order to prevent a cliff effect (see Memo, 7/6).
Senator Patty Murray (D-WA), former co-chair of the Super Committee created by the Budget Control Act of 2011, spoke about her experience on the Super Committee at the Brookings Institute on July 16. Senator Murray said that a comprehensive plan will be needed in order to replace the sequester. “We are also not going to allow just the defense cuts to be replaced without addressing the domestic spending cuts that would be devastating to the middle class,” said the Senator. Senator Murray said she supports continuing the Bush era tax cuts for 98% of the population, but not for the wealthiest 2% of households in our country. This position is supported by NLIHC and others, including a broad network of national organizations working with the Coalition on Human Needs and Americans for Tax Fairness, who oppose even temporary extensions of the Bush era tax cuts for households making more than $250,000 a year, America’s wealthiest 2%.
Senator Murray also said she will hold out beyond 2012 for an acceptable deal. “So, if we can’t get a good deal, a balanced deal that calls on the wealthy to pay their fair share, then I will absolutely continue this debate into 2013 rather than lock in a long-term deal this year that throws middle class families under the bus, and I think my party and the American people will support that.”
Advocates continue to take action against sequestration. A “Rally to Restore Balance: Avoid Sequestration” has been set for July 25 at 2 pm ET in the Upper Senate Park, at Constitution and Delaware Avenues adjacent to the Russell Senate office building. Senator Tom Harkin (D-IA) is expected to address the rally, which is open to all. The rally is part of the efforts of the non-defense discretionary coalition to raise awareness on sequestration’s potential impacts on NDD programs to find a balanced approach to deficit reduction.
Click here to view HHS’s response to Mr. Markey.
The NDD letter is attached.
The George Mason University report is attached.
Click here to view Mr. Bernanke’s testimony to the House Committee on Financial Services.
Click here to view the CRFB report.
Click here to view Senator Murray’s remarks.