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Posted by on Mar 1, 2013 in Business, Economy, Featured, Politics | 1 comment

Happy Sequester Day!

Daryl Cagle,

Sequester. Automatic draconian cuts. It was an idea both sides considered so bad, so awful, so incredibly dumb that surely no responsible politician, political leader or party would let it stand.


Happy Sequester Day, America!

Nineteen months after it was put into place, the sequester has arrived.

Barring unexpected developments, President Obama will issue an order at some point on Friday — perhaps as late as 11:59 p.m. — cancelling some $85 billion in spending across the federal government.

It’s an outcome that no one in Washington wanted. When the across-the-board cuts were devised in the summer of 2011, they were intended to be so destructive, so appallingly arbitrary, that the parties would have no choice but to swallow a “grand bargain” on cutting the deficit.

But that breakthrough never came, and it’s unclear if one ever will.

Obama is scheduled to host congressional leaders at the White House on Friday, but few expect that meeting to spark progress on undoing the cuts that both sides have bemoaned as foolish.

“I think it’s probably going to take awhile before there’s a real meeting,” Sen. Bob Corker (R-Tenn.) said on Thursday. “I would look at tomorrow as a photo op — I really would. And I don’t know of anybody who’s viewing it differently at this point.”

NBC News:

It’s Friday, March 1, and that means the federal government has crossed the much-hyped and dreaded deadline for the fiscal reductions known as the “sequester.”

The members of Congress who for voted for the Budget Control Act – and the budget cuts contained within – and President Barack Obama who signed it into law on Aug. 2, 2011, may not have believed the day would arrive, but now it has.

But today is only the beginning of the beginning.

For one thing, Obama must sign an order formally starting the “sequester” or spending reductions – which according to a new estimate from the Congressional Budget Office – would amount to $42 billion in the current fiscal year.

And White House aides have indicated that the president is not likely to put pen to paper on that order until after he meets with congressional leaders, a meeting slated for Friday morning.

The Age offers this fact sheet of FAQs on the sequester.

CBS News:

The dreaded sequester takes effect today as $85 billion in automatic cuts to 2013 federal spending begin rolling in, slashing services and sowing all manner of chaos, according to government officials who have warned for months about the harmful economic impact of allowing the cuts to proceed.

Nobody is particularly happy about it. President Obama and congressional Democrats have sounded the alarm most urgently, warning that the cuts – half domestic, half defense – will sideline an economic recovery still struggling to gain traction and jeopardize national security by crimping military readiness.

Many Republicans have raised similar concerns about military readiness and about the indiscriminate nature of the spending cuts, which are not targeted but levied across the board. Even Republicans who argue that we can and must absorb the magnitude of spending cuts contained in the sequester admit that cutting indiscriminately is a “stupid” way to reduce government outlays.

In short, depending on whom you ask, the sequester falls somewhere poorly devised and downright catastrophic.

But is there some silver lining to be found in all this drama? Despite the dire warnings from policymakers and economists, could the impact of sequestration be less harmful than meets the eye, or perhaps even beneficial in some ways?

With those questions in mind, here are four reasons sequestration might not bite as painfully as some expect – and might even yield some unexpected benefits along the way:

Go to the link to read the four unexpected benefits (but I don’t see one there about America’s political class being fired en mass…)
Paul Bandus:

Well isn’t this familiar. Once again, our feckless politicians have pushed the nation to the brink over a problem that they created but can’t solve. Pick your cliché: We’re about to go over a cliff. The sky is falling. The ax will drop. And guess what? An even bigger crisis — a possible government shutdown — awaits at the end of March. In Washington, the good times just keep on coming.

I’m guessing that by now you know what the sequester is. If not: The federal government is about to begin cutting $1.2 trillion in spending, divided among defense and domestic programs. That sounds like a lot, but it’s spread over a decade. It amounts to about two pennies on the dollar.

There are a few good things to say about the sequester, but there seem to be more bad ones. On the plus side: Spending cuts might prevent another downgrade of the federal government’s long-term credit rating. Major rating agencies like S&P and Moody’s have warned of another ratings cut, which would further tarnish America’s financial reputation. Also: Cutting two cents out of every dollar is, sequester advocates say, hardly disastrous. The federal government is bloated and redundant. A few quick examples to illustrate this point:

Go to the link to read the rest.

USA Today:

The budget cuts scheduled to go into effect Friday are designed to save the government $85 billion this year. But officials and budget analysts say some of those short-term savings could actually cost the government money in the long run.

The most obvious example: tax collections. Through across-the-board cuts, the so-called sequester would take $436 million out of the Internal Revenue Service’s enforcement budget this year. Given the widely accepted belief that the IRS generates $4 in increased tax payments for every $1 in enforcement, the government could eventually lose $1.7 billion.

“Thus,” acting Treasury Secretary Neal Wolin argued in a Feb. 7 letter to Congress, “each dollar the sequester cuts from current IRS operations would cause a net increase to the deficit, as the lost and forgone revenue would exceed the spending reduction.”

In addition, Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee on Wednesday, the abrupt spending cuts this year could slow economic growth by 1.5 percentage points, which would reduce tax revenue. “Besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run for any given set of fiscal actions,” he said.

Even the estimated savings of $85 billion this year are mostly on paper. That figure refers to “budget authority” — the amount of money that the government can set aside for expected spending. In terms of actual spending, called outlays, the sequester would trim only about $44 billion in the fiscal year that ends Sept. 30, the Congressional Budget Office says.

Though impossible to quantify, cuts this year could also show up as expenses in 2014 and beyond through deferred maintenance, lawsuit settlements and increased fraud.

One area of particular concern: maintaining warships and airplanes. Deputy Defense Secretary Ashton Carter told Congress recently that the Pentagon would have to cancel maintenance on 25 ships and 470 aircraft beginning Friday.

“if you don’t replace the O-rings in a system and continue to use it, you’re going scruff up the cylinders. And now, instead of replacing O-rings, you’re overhauling an engine,” said Ron Ault, president of the Metal Trades Department of the AFL-CIO, which represents shipbuilding unions. “It’s going to cost millions extra. There’s not one penny of savings in this. It’s going to drive costs through the roof.”

In some cases, canceling contracts could result in termination costs for the government, said Alan Chvotkin, executive vice president of the Professional Services Council, a trade group of government contractors. Sorting out who pays for those costs could result in expensive litigation, he said.

“Depending on where that contract is in its life cycle, those termination costs might actually exceed the cost to finish out the contract,” Chvotkin said. “Those claims may not be resolved for several years down the road. We could see the impact of short-term contractual obligations have long term impacts for the government.”

Enjoy your day!

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