CBO Issued Report on Impacts of Automatic Spending Reductions

CBO analyzed how a cancellation of the automatic spending reductions specified by the Budget Control Act of 2011 (Public Law 112-25) would affect the U.S. economy. This study responded to the request of Chris Van Hollen, D-Md, who tries to accumulate proofs that sequestration should be avoided.

 

The fact is that President Barack Obama will confront with lawmakers (after a long August holiday) on a daunting list of decisions affecting the economy (“continuing resolution”, 2014 fiscal budget, fiscal consolidation plan and debt ceiling). The problem is that Automatic, across-the-board budget cuts of $109 billion loom with the new government fiscal year, which begins Oct. 1, after $85 billion in cuts that took effect in March. The White House wants to avoid them but it will face Republican-controlled House which has shown little inclination to take up a compromise.

 

Note that CBO analyzed a scenario under which the automatic spending reductions (sequestration) in effect for 2013 would be canceled at the beginning of August and none of the reductions scheduled for 2014 would be implemented.

 

More from CBO:

 

Those changes would increase the level of real (inflation-adjusted) gross domestic product (GDP) 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. (The estimated effects are given for the third quarter of calendar year 2014, rather than the fourth quarter, because the policy being analyzed addresses only fiscal years 2013 and 2014.) The effects on output and employment in calendar year 2013 would be smaller than those in 2014.
 
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.

 

While a shrinking federal deficit has eased pressure recently, this report is a also a strong argument  for Democrats to replace sequestration.