Another week, another case of “electile dysfunction” in Washington... This time, the gridlock results in an $85 billion package of spending cuts commonly known as “the sequester.” And -- as fate would have it -- the cutbacks are taking effect just as the economy exhibits its most sustained improvement since the recession ended in 2009. Consider the following:
Sales of new homes increased in January to their highest point in four-and-a-half years.
U.S. manufacturing expanded in February at the fastest pace in 18 months.
Orders for core capital goods – a barometer of future business investment plans -- surged in January by the most in more than a year.
Private employers added an average of 208,000 jobs per month in November, December and January… up nearly 35 percent from the previous quarter.
And the Consumer Confidence Index rebounded in February, reversing three straight months of declines.
But one thing Americans have virtually no confidence in these days is the ability of their elected officials to strike a balance between spending cuts and tax hikes.
And while many consumers may have been too busy spending, hiring and investing to panic over Washington's latest self-inflicted wound, “the sequester” could have far-reaching implications.
While both sides of the aisle lamented the spending reductions the full impact of the cuts likely will be felt later rather than sooner.
Half of the $85 billion will come out of the defense budget. The remaining amount is slated to come from non-defense discretionary programs like education, national parks, law enforcement and through furloughs of federal employees.
Rep. John Boehner - Speaker of the House: “Americans know that Washington has a spending problem. It's hurting families, it's hurting small businesses, it must be addressed. ...The president told me directly, we don't have a problem. In the nearly, four years since Senate Democrats passed a budget, government has pushed our national debt to over $16 trillion, that's over $52, 000 for every man, woman and child in our country and I don't think the debt is the result of insufficient taxation. This debt is the result, I believe of, spending that's out of control. I think the spending is threatening the future of our grandkids, and frankly, threatening the American dream”.
President Barack Obama: "the issue is not technical....the issue is political....the question is whether we are going to see a willingness on the part of all parties to compromise....in a meaningful way....democrats are going to have to accept the need for entitlement reform....but it also means that republicans are going to have to accept the need for additional revenues...if we are going to be able to close the deficit and provide the kind of certainty to make your long term investments."
Delays in deployments of aircraft carriers and potential furloughs of more than 1 million federal employees seem far removed from the general population. Despite the distance, some aspects of the cuts will have a direct effect on those who live and work in rural America.
According to officials with United States Department of Agriculture and the Food Drug Administration, food safety inspections will be curtailed.
FDA Commissioner Margaret Hamburg says the cuts may mean 2,100 fewer food safety inspections which could mean an increased risk for consumers. Commissioner Hamburg did caution the cuts would be delayed and no furloughs would be necessary.
As Market to Market reported last week, USDA would potentially furlough the nation’s 8,400 meat inspectors for up to 15 days to deal with the reduction in funds. Without inspectors, the plants must close and, according to the American Meat Institute, the resulting ripple effect will cost the industry $10 billion.
Senator Charles Grassley of Iowa sent a letter to Secretary of Agriculture Tom Vilsack asking for alternatives to pulling meat inspectors off the line.
Sen. Charles Grassley, R-Iowa: “I don't think they'll shut down meat packing plants because people have to have food to eat and the Administration doesn't want food riots. On the other hand, you get back to the basic thing. Why would you question the safety of food for our consumers when there are other people in the Agriculture Department could take the layoffs, or the furloughs, and deal with it that way. You've gotta prioritize. And meat inspection has to have a top priority out of the Department of Agriculture.”
While the law states the cuts are to be applied uniformly to all “programs, projects and activities within a budget account” those inside the Beltway have a broad interpretation of how the cuts will be made.
Republicans and Democrats did attempt to stave- off “the sequester” several times this week but to no avail.
Rep. John Boehner - Speaker of the House: “We have moved a bill in the house twice. We should not have to move a third bill before the Senate gets off their ass and begins to do something."
One plan put forward by Senate Democrats included cutting farm programs by $27.8 billion over the next decade.
Senator Grassley, a Republican, was not pleased the farm bill was being made into a political football.
Sen. Charles Grassley, R-Iowa: “The only spending the other side is willing to cut is farm subsidies. Using farm subsidies to help pay for a sequester replacement puts the agriculture committee in quite a conundrum.”
While $85 billion sounds like a lot of money, the sequester accounts for less than 3 percent of this year’s $3.6 trillion federal budget.