Exactly what are the sequestration cuts and when are they going to take place? More important, is this something to fear? As you’ll see, the answer is no. You do not need to panic over the sequestration.
It’s true that President Obama and Congress failed to find common ground on spending cuts. Maybe the fiscal cliff was averted – for the time being – but the budget crises hasn’t been resolved. As a result, the sequestration took effect on March 1st. Immediately thereafter many popular main stream media publications reported that automatic cuts are going to start taking place immediately and those cuts would cripple the government and economy. Let’s discover why these naysayers are off their rockers.
What are the sequestration cuts?
This year the government is supposed to cut $85 billion in spending. However, the CBO (Congressional Budget Office) foresees that there will only be $44 billion shaved from government spending in 2013. The other $41 billion will be planned this year but will be implemented in the future. So, the cuts in 2013 amount to about 1% of total spending. That’s what all the hoopla is about. I bet you could cut 1% of your budget without even rolling out of bed. For our government however, it’s as if we’re asking them to remove their own liver with a rusty spoon. Pass the Advil please.
As I said, many major news outlets screamed about the draconian spending cuts that were going to be implemented starting Monday morning. Here is a sampling of some of what I read:
- Office of Management and Budget will direct the Pentagon to cut its budget by 13%. Other government agencies will have to cut their budgets by 9%.
- Lower rates will be paid for school construction and energy bonds.
- EPA staff will be notified that they must take an unpaid 13 day hiatus from work.
- Money that goes to support public rent assistance, farm loans and food programs will be reduced immediately.
- Large military contractors will send out layoff notices this month.
- The school-year will be trimmed and teacher layoffs will take place.
- The Agriculture Department will have to remove 300,000 poor people (women and young children) from its various assistance programs.
- The FAA will reduce its staff. Airports will be closed. Flights will be canceled.
- The USDA will have fewer inspectors to visit meat packing plants. Some factories will close.
Why aren’t I tearing my hair out and wearing sack cloth? Because none of this is going to happen as reported and here’s why.
Almost as soon as the sequester became law, both the Republicans and Democrats agreed that they will make sure the government receives full funding as they continue to slug out how to implement the required $85 billion in automatic budget cuts.
Is your budget out of whack? Are you heading towards your own “personal sequester”? If so, check out You Need A Budget. It’s a wonderful tool that will help you get control over your spending and get out of debt fast. You may not be able to trim $85 billion from your spending, but you will get back on track muy pronto.
Even if this latest agreement fails to result in a solution and the automatic cuts are implemented, you may not have to head for the hills with all your survival gear.
Why You Shouldn’t Lament the Sequester
As I said, Congress is going back to the huddle to try to coordinate how to implement the spending cuts wisely. There aren’t any specific dates for budget cuts. Unless things change, the cuts will be applied evenly across the board but the impact will be program-specific.
If government agencies lay off employees they have to provide them with 30 days’ notice first. That means that it will be at least April 7th before anybody is laid off. If you work for the government, you may have to start looking for a new job – but you have some time to start preparing for it.
Of course, some of the fallout from the budget cuts is tough to foresee. The Department of Homeland Security and the Department of Housing and Urban Development hasn’t chimed in on how and when they might cut their programs. Neither has the Department of Health and Human Services.
Immediate Cuts We Know About
The Air Force has already cut some flight training hours off its schedule. I don’t know if those hours are crucial or not to the defense of our country. I have faith that if those hours are crucial to long-term readiness, they will be restored.
The USS Truman Aircraft Carrier was supposed to be under way towards the Persian Gulf early last month but that departure has been delayed. That’s a direct result of the budget sequester.
The Capitol building in Washington D.C. closed some entrances. Also, the janitors at the Capitol building won’t be able to work overtime. Yawn.
Cuts That Might Happen
If cuts are made by the TSA and FAA, travel could be delayed and made more difficult. If cuts are made to the FBI it might be more difficult to detect and stop criminal and terrorist acts.
Even though Medicare benefits are beyond the reach of the sequester, payments to providers of Medicare benefits aren’t. As a result, payments will shrink by 2%. Doctors and hospitals aren’t going to like this.
So, yes, there will be consequences of our government tightening the belt. But nobody knows what that is going to look like.
Which programs won’t be cut according to the Congressional Research Service (CRS):
- Social Security Benefits.
- Medicare Benefits
- VA Benefits
- Pell Grants
- Medicaid Benefits
- Welfare & Food Stamps
- Children’s Health Insurance Program
- Child Nutrition Programs
As is often the case, things are rarely the way they seem. We can’t predict how government spending cuts will be manifest and we can’t predict the ultimate outcome.
Certainly there will be spending reductions and that’s going to translate into some pain for some people. I don’t want to understate that. But there might be a very shiny silver lining. These spending reductions could be the first steps we take that eventually lead the United States towards a financially stable economic future. 🙂
How do you feel about the sequester? Are you worried or are you generally optimistic?
Angie says
March 22, 2013 at 12:05 PMWe are small mom-and-pop landlords with some Section 8 tenants (HUD payments basically). We’re seeing new vouchers being stopped and current rents being frozen/cut.
We’d rather that not happen, but we understand these sequestration cuts are necessary :-).
Austin says
March 8, 2013 at 11:57 AMVery calm, cool, and collected.
Neal Frankle says
March 10, 2013 at 11:15 AMThanks for the kind words Austin.
Matt Louis says
March 4, 2013 at 12:55 PMMy understanding is that given these “cuts” are to take hold (or an equivalent dollar amount distributed differently), we will still spend more this year than last year! Cutting government spending by my simple minded look at it would mean actually spending less a given year than the previous year. I guess Washington math just doesn’t add up unlike American household budgets. This mindset has to change.
Neal says
March 4, 2013 at 9:34 AMAgreed. Maybe this will wake these folks up – on both sides of the isle!
Kurt @ Money Counselor says
March 4, 2013 at 8:53 AMI’m not too worked up about the sequester. It’s sad that our so-called leaders can’t elevate the country’s interests above their own, but reining in government spending is certainly a required part of sorely needed budget balancing. If sequester is the only way that can be done in these dysfunctional times, then so be it.