Wide-ranging federal spending cuts that are set to take effect Friday have been called “severe,” “brutal,” “harsh,” “harmful” and a “meat-cleaver approach” — and that was just in one speech by President Barack Obama.
Republican leaders have said the cuts are “indiscriminate,” “harmful,” “devastating” and “disastrous” and would “hurt a lot of people.”
With all the dire warnings from both parties, one might think the federal government is headed for a radical downsizing.
The dreaded automatic cuts — known in Washington budget language as “sequestration” — amount to less than 3 percent of this year’s $3.55 trillion budget.
But the cuts won’t be spread across the entire budget. Roughly two-thirds of the budget — Social Security, Medicaid, the majority of Medicare, food stamps, welfare checks and interest payments on the national debt — is considered “mandatory” spending and is not subject to sequestration.
That means the cuts will slice through the remaining one-third of the budget, known as “discretionary” spending. Scheduled discretionary spending cuts include an 8 percent reduction in the Pentagon budget and cuts of 5 percent to 6 percent in domestic programs that range from airport and border security to public school assistance to grants for scientific research.
If sequestration runs its full course through 2021, the federal budget will still grow 50 percent larger over the next eight years and the national debt will swell to $21.6 trillion from its current $16.6 trillion, according to the nonpartisan Congressional Budget Office. Compared to the nation’s overall economic output, federal spending and the amount of debt held by the public would be at roughly the same levels in 2021 as they are today, the CBO estimates.
While the overall scale of federal spending and indebtedness won’t change much under sequestration, discretionary spending will be increasingly squeezed — from 34.1 percent of federal spending now to 25.3 percent in 2021, according to CBO estimates that assume the sequester remains in place that entire time.
The biggest factor in crowding out future discretionary spending is interest payments on the national debt. Net interest payments are $224 billion this year, or 6.3 percent of the overall budget. By 2021, CBO estimates that interest payments will balloon to $730 billion — larger than the projected defense budget that year — and consume 13.6 percent of federal spending.
The CBO projections highlight the difficulty of reining in spending when a growing majority of the budget is considered untouchable.
Republican Sen. Marco Rubio, who voted against the 2011 budget deal that created sequestration, says the current budget stalemate underscores the need to make changes to Social Security and Medicare.
“Government is too big and destined for bankruptcy because of our long-term obligations in our entitlement programs, particularly Medicare and Social Security,” Rubio said this week. “While the sequester is the topic of the day, the reality is that if we do nothing to save Medicare and Social Security for younger people like me who are decades away from retirement, the sequester will seem like child’s play in comparison to what will happen when these two vital programs go broke.”
Rubio and other Republicans have advocated changes that include raising the retirement age for future Social Security and Medicare recipients and giving future Medicare beneficiaries the option of taking a federal subsidy to buy private health insurance.
Democrats have rejected such proposals.
“Sequestration is a crisis, and Social Security’s manageable shortfall twenty years away is not,” said U.S. Rep. Ted Deutch, D-Boca Raton. Rather than alter benefit payments for Social Security, Deutch said the program’s long-term solvency would be bolstered by making all income subject to the Social Security payroll tax. Social Security taxes now apply to an individual’s first $113,700 in income.
The CBO projections also illustrate the peculiar nature of budget “cuts” in Washington policy debates and political rhetoric.
Sequestration is said to cut a cumulative $1.2 trillion through 2021. But overall federal spending will steadily increase over that time. The increase, however, will be $1.2 trillion less than it would have been without sequestration.
Two years ago, for example, the CBO projected that federal spending would reach $5.68 trillion in 2021. But this month, after factoring sequestration into its calculations, CBO projected that 2021 spending will be $5.35 trillion. The newest figure could be seen as a $330 billion “cut” from earlier projections, but it’s still a 50.6 percent increase in spending from this year’s $3.55 trillion budget.
A similar scenario played out after Obama signed the federal health care law in 2010 and Republicans accused Democrats of cutting $700 billion from Medicare over 10 years. In fact, Medicare spending is projected to increase each year, but its future rate of growth is expected to be slower than previously projected. While Republicans attributed this difference to “cuts” that will harm seniors, Democrats called it “savings” that will come from insurance companies and providers.
While budget cuts can be a matter of political semantics in discussions of long-range spending, sequestration during the current budget year would mean an actual reduction in money that has been approved by Congress.
For this year’s federal budget, sequestration would cut $85 billion in “budget authority,” which can include approvals of federal contracts or grants that extend for several years. The amount of actual spending that would be cut during the current fiscal year would be $44 billion, the CBO estimates, with the remaining $41 billion in cuts coming later.
The $85 billion figure represents 2.4 percent of this year’s budget.
“Last year we spent almost $3.5 trillion and we’re talking about a 2 percent cut — hardly draconian,” said U.S. Rep. Steve Southerland, R-Pensacola, in an interview this week.
Some Republicans and conservatives have minimized the impact of the looming cuts. But in a letter Wednesday to Obama, Florida Gov. Rick Scott called the defense cuts “disastrous” and urged that they be replaced with other “reductions in targeted areas to make government more efficient,” a position echoing the Republican party line. The National Republican Congressional Committee, in an e-mail seeking to blame Democrats for the current budget impasse, said Florida families will “take a huge hit” from “President Obama’s devastating sequester cuts.”
Democrats have called for a mixture of tax increases and spending cuts to avert sequestration. A bill proposed by Senate Democrats and viewed favorably by the White House would balance $55 billion in cuts and $55 billion in new taxes for the current year.
Republicans say taxes are off the table after Congress approved a 10-year, $600 billion package of tax increases on upper-income filers in January.