Want to Boost the Economy? End the Sequester

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Money Cut in Half

To put it lightly, the sequester is an insane monster. The spending cuts have their roots in the 2011 Budget Control Act, which was part of an agreement with Congress designed to avert the crisis related to the debt ceiling. The impact of the sequester — initially designed to be so onerous that it would be the common enemy that united Democrats and Republicans — has so far been difficult to quantify.

If you’ve just emerged from your bomb shelter to survey the post-apocalyptic world that is America after Sequestration Day, here it is: “A slow grind that will intensify with each passing day,” according to President Barack Obama, who railed against the spending cuts at a press conference in March. Over the next nine years, $1.2 trillion will be pulled out of the U.S. economy, with $85 billion in the next seven months alone. It’s old hat and dramatic, but America just shot itself in the foot — but at least we have health care.

“Every time we get a piece of economic news over the next month, the next two months, the next six months,” Obama said, “as long as the sequester is in place, we will know that economic news could have been better if Congress hadn’t failed to act.”

However, it’s clear that sequestration — combined with the expiration of the payroll tax holiday — has helped create a contractionary fiscal environment. Traditionally, governments increase spending during recessions to stimulate economic activity, but expansionary policies began to expire at the turn of the decade. A broad decrease in government spending has helped contribute to slow economic growth and high unemployment.

The White House estimated that more than 750,000 jobs would be lost, and that at least half a percentage point would evaporate from national growth statistics. Regional effects vary by nature and intensity, and the government has released its best estimates for the localized effects, but the overall impact remains fuzzy. No one is sure, but the consensus is that it will suck.

At the request of Rep. Chris Van Hollen (R-Md.), a ranking member of the House Committee on the Budget, the Congressional Budget Office published a letter Thursday outlining what the effects of “canceling” the sequester would be.

“In total, by CBO’s estimates, canceling the automatic spending reductions effective August 1 would increase outlays relative to those under current law by $14 billion in fiscal year 2013 and by $90 billion in fiscal year 2014,” the letter reads.

“Those changes would increase the level of real (inflation-adjusted) gross domestic product by 0.7 percent and increase the level of employment by 0.9 million in the third quarter of calendar year 2014 (the end of fiscal year 2014) relative to the levels projected under current law, CBO estimates.”

RealGDP

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