The Daily Item, Sunbury, PA


March 7, 2013

Budget cuts damage economy without aiding outlook

By Mike Dorning

Bloomberg News

WASHINGTON — President Barack Obama and congressional Republicans have stumbled into an approach to deficit reduction that inflicts the pain of economic austerity without the gain of addressing the long-term budget gap.

Automatic spending cuts that began March 1, combined with tax increases enacted earlier this year, will depress U.S. economic growth by about half in 2013, according to government projections. At the same time, the spending cuts leave untouched the popular retirement and health benefits that both Obama and Republican leaders agree are the main drivers of the deficit.

"It attacks the wrong part of the budget," Bob Bixby, executive director of the Concord Coalition, a group that's pushing for lower deficits, said of the spending cuts. "It's a losing proposition in the long term."

Obama and the Republicans agreed to the latest across-the- board cuts, called sequestration, only in the expectation they would be so unacceptable that they'd force a broader compromise on a budget.

Efforts at compromise failed, so the cuts will reduce defense programs by about 13 percent and most non-defense programs by 9 percent for the remainder of the U.S. fiscal year, according to the White House Office of Management and Budget. They exempt Social Security, Medicaid and Medicare benefits, though Medicare provider payments are cut by 2 percent.

Yet it's the entitlement programs that are behind the forecasts for soaring spending over the horizon. Without any change, the combined cost of Social Security and the major federal health programs will rise to 15.8 percent of U.S. gross domestic product by 2037, up from 10.4 percent last year, according to Congressional Budget Office projections.

By comparison, all federal spending, excluding net interest on the national debt, has averaged 18.7 percent of GDP over the past 40 years, according to CBO.

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