America’s fiscal turbulence

Just two months on from the last major political showdown over the US’s budget deficit, Washington’s politicos are arguing over the potential impact of automatic budget cuts which could hit this week.

The sequester was originally devised in 2011 to force Democrats and Republicans to strike a deal to cut the US deficit.

But both sides seem to be poles apart with Republicans keen to reduce spending while Democrats want to raise revenue by ending tax breaks for the wealthy.

“There are deep, deep divisions between Democrats and Republicans on these issues, and the fact of the matter is when they cut the deal back in 2011 there was a political underpinning for it. Both sides presumed that they would eventually win a clear majority, a clear governing position, in the 2012 election. So effectively they each decided to stand down and wait to see how the election played out, and then whoever was in charge would be able to sort things out.“ – John Nichols, The Nation magazine

President Barack Obama has been warning that the approximately $85bn in automatic cuts would put thousands out of work and cause damage to the US economy. Obama said:

“The last thing you want to see is Washington get in the way of progress. Unfortunately, in just four days, Congress is poised to allow a series of arbitrary, automatic budget cuts to kick in that will slow our economy, eliminate good jobs, and leave a lot of folks who are already pretty thinly stretched scrambling to figure out what to do.

“Thousands of teachers and educators will be laid off. Tens of thousands of parents will have to deal with finding child care for their children. Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings. Tomorrow, for example, I’ll be in the Tidewater region of Virginia, where workers will sit idle when they should be repairing ships, and a carrier sits idle when it should be deploying to the Persian Gulf.

“Now, these impacts will not all be felt on day one. But rest assured the uncertainty is already having an effect. Companies are preparing layoff notices. Families are preparing to cut back on expenses. And the longer these cuts are in place, the bigger the impact will become.”

The impending cuts date back to 2011, when they were passed as part of the Budget Control Act that year.

They were intended to be incentive for a dedicated Congressional committee to come up with a deal to cut at least $1,2tn from the budget over 10 years; but that did not happen.

“We have two stark philosophies, and [this] is a far superior way to govern than to have open warfare; it is a far superior way to govern than almost any other – it’s a lousy way to govern, but it’s better than anything else – and the fact of the matter is the only time you get to compromise in a divided government is when you have a deadline, and sometimes these deadlines precipitate crisis.“ – John Feehery, a Republican strategist

The cuts were then supposed to come into effect at the beginning of 2013.  But together with the expiration of some tax cuts, their impact on the economy would likely have thrown the US into recession. At the last minute, Congress reached a deal to push the sequester cuts to March 1.

If Congress does not act, the $85bn in cuts for the rest of 2013 will take place on Friday; and most parts of government will be affected.

Half the cuts – just over $42bn – will be to defence, which will mean reduced maintenance on ships, aircraft, and buildings; and which defence contractors say will force them to lay off thousands of workers.

The other half will be to domestic programmes. Food inspections, programmes for the mentally ill, education programmes, and transportation will be affected.

The Federal Aviation Authority says it is facing $600m in cuts, which will affect the number of air traffic controllers and maintenance staff it will have at airports, and cause delays in flight times.

Some 70,000 children will also lose access to Head Start, an early learning programme for low-income children.

And if Congress does not reach a deal, automatic spending cuts of some $1tn over the next 10 years will go into effect, meaning even deeper cuts to both defence and domestic programmes.

Inside Story Americas, with presenter Kimberly Halkett, spoke to Jo Comerford, the executive director of the National Priorities Project, about the practical effects the cuts could have on the US and its citizens.

To discuss the US’s fiscal turbulence, we are also joined by guests: John Feehery, a Republican strategist; and John Nichols, the Washington correspondent for The Nation magazine.

“For [the Obama administration] to suggest that this will result in the hollowing out of the military and interruptions of food inspections and it will result in folks not getting critical health services is again preposterous. I think it is up to the president to show leadership, to go to Congress and show how he can achieve these reductions by making prioritised reductions protecting critical services. I think the American people know there’s at least 3 percent of wasteful spending in the federal government, that these kinds of reductions can be made without jeopardising national security, these kinds of reductions can be made without jeopardising food inspections or critical health care services.” Bobby Jindal, US Republican Governor, Louisiana