13 Mar 2013

US sequestration: the impact of the defence cuts

On 1 March, President Barack Obama signed the official order to put the US sequestration into effect as required by law in the absence of a congressional agreement to stop the $85 billion in across-the-board-cuts.

Despite his own well-documented misgivings of the extent of the cuts, Obama had no choice but to make the sequester official after talks between Republican and Democrat officials failed to reach an alternative solution before the deadline.

The cuts were outlined in 2011 and negotiated by both Democrats and Republicans, which set an across-the-board reduction in most programs if Congress failed to find other ways to trim the deficit by $1.2 trillion over the coming decade. The hope at the time was that Congress would therefore be forced into a new agreement to reduce to deficit, but talks hit gridlock and no new plans were ever put in place.

As a result of the failure to reach an agreement, the Pentagon faces a budget reduction of more than $40 billion with additional cuts to come in future years as long as the sequester remains in effect. However, House Speaker John Boehner recently stated: “There’s no plan from Senate Democrats or the White House to replace the sequester.”

So what will the sequester mean for Budgets?

In the White House Office of Management and Budget’s report to Congress on the sequester, Acting Director Jeff Zients said that the OMB had calculated that over the course of the fiscal year, the sequestration requires a 7.8% reduction in defence funding and a 5% cut in non-defence discretionary spending. However, he said that because the cuts are spread over seven months instead of twelve, the effective reductions are 13% for defence and 9% for domestic agencies.

Mr Zients also stated that the impacts of the sequester will be far reaching beyond defence budgets, and will also:

• undermine non-defence investments vital to economic growth
• threaten the safety and security of the US and cause severe harm to programs which benefit the middle class, seniors, and children
• reduce real GDP growth for 2013 by 0.5 to 0.7 percentage points

The decision has come under major scrutiny and criticism. Recent polling indicated that Republicans have been targeted for the majority of the blame for sequestration being triggered, with 47% naming the Republican Party and 33% naming Obama.