Monday, May 6, 2013
The Sequester does not save money. Repeal it.
David Johnson. Campaign for America’s Future
Cutting Meals On Wheels doesn’t save the government a dime, it costs $489 million a year. Cutting IRS obviously increases the deficit because it lowers tax revenue. Other cuts also increase spending. All obviously hurt the economy. Tell me again, what’s the justification for this? Repeal this foolish and unjustified sequester.
The sequester is a series of across-the-board budget cuts (except not for the FAA when it affects business flyers). This year $85 billion is cut from government spending. This not only takes $85 billion out of the economy, it takes it out from programs where the spending was set up to maximize the benefit to We the People. (That is the point of government spending.)
A few examples:
Meals on Wheels: The Center for Effective Government (CFFEG) reports that this year’s $10 million sequester “savings” on the Meals on Wheels program “will be dwarfed by at least $489 million per year in increased spending on Medicaid, both this year and in each subsequent year that sequestration remains in place.” By helping elderly people stay at home, the program keeps them from needing to move to nursing homes rather than home care. “The average cost to Medicaid of nursing home care per patient is approximately $57,878 annually.” “Nationally, according to a survey by the Administration on Aging, as many as “92% [of enrollees] say Meals on Wheels means they can continue to live in their own home.” Click through for more, calculations, etc.
IRS Cuts: Think Progress reports, in Automatic Cuts To The IRS Will Increase The Deficit, that IRS cuts could cost tremendously more than the sequester cuts “save.” For example, every $1 cut from enforcement, modernization, and management system costs $200.
In April, the agency announced it would furlough more than 89,000 employees to cope with sequestration cuts. Operating at normal capacity, the agency collected $2.5 trillion in government revenues last year, $50 billion from enforcement activities. But reducing operations will bring in less money. Every dollar invested in its enforcement, modernization, and management system reduces the deficit by $200, and every dollar it spends on audits, liens, and seizing property from tax evasion nets $10. One estimate calculated that furloughing just 1,800 enforcement positions could mean losing $4.5 billion in revenue.
Cuts the economy: According to USA Today, in Hidden costs of sequestration: Save now, spend later, slowed economic growth this year alone means that $85 billion of cuts costs the government $31 billion, so it really only cuts $44 billion. And the increased spending due to lost jobs, increased health care spending, etc. add to that,
Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee on Wednesday, the abrupt spending cuts this year could slow economic growth by 1.5 percentage points, which would reduce tax revenue. “Besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run for any given set of fiscal actions,” he said.
See also NY Times, U.S. Spending Cuts Seen as Key in Slowing Growth.
Costs Jobs: The sequester is expected to cost up to 750,000 jobs. The resulting loss of income tax revenue and increases in unemployment compensation and safety-net programs is only the beginning of the cost of these foolish cuts. This loss ripples out into the larger economy with things like the loss of sales at local grocery and shoe stores and restaurants.
Scientific research: The future cost of cutting back on scientific research is not measurable, and will not be low. What if the Internet had not been invented, or had been invented by a private company and therefore held hostage for the profit of a few?
Medical research: What is the future cost in Medicare and Medicare spending from cutting back now on medical research? What is the cost of losing the researchers who can’t get funding?
Even defense cuts: Because cuts in the military budget are “across-the-board” and unplanned, so contract termination fees and resulting litigation, future cost of maintenance cutbacks and other new costs will actually increase future spending in this area much more than current cuts “save.” From the previously-referenced USA Today story,
…if you don’t replace the O-rings in a system and continue to use it, you’re going scruff up the cylinders. And now, instead of replacing O-rings, you’re overhauling an engine,” said Ron Ault, president of the Metal Trades Department of the AFL-CIO, which represents shipbuilding unions. “It’s going to cost millions extra. There’s not one penny of savings in this. It’s going to drive costs through the roof.”
In some cases, canceling contracts could result in termination costs for the government, said Alan Chvotkin, executive vice president of the Professional Services Council, a trade group of government contractors. Sorting out who pays for those costs could result in expensive litigation, he said.
No Justification For Sequester Or Other Cuts
The justification for the sequester was that “government spending is out of control,” that the deficit is too high and that economic growth is hurt by government debt. But these are only a few examples of how these foolish cuts actually increase government spending. The deficit is already down by 50% (as a share of the economy) from the levels Bush left behind. And the academic study that claimed that government debt hurts growth has been debunked because it not only used data selected to make this point, but because a spreadsheet error led to the wrong conclusions. So the justifications collapse on simple examination.
Repeal the sequester now. We need the government increasing spending to get us out of this economic quagmire and return to full employment.