"There are only two areas that are the entire cause of the spending-side problem, and that's health and Social Security," said Rudolph Penner, a former director of the CBO who is now a senior fellow at the Urban Institute, a Washington policy research organization.
Those two areas are among the most favored by the public. Americans by 51 percent to 34 percent say it is more important to keep Medicare and Social Security benefits as they are than to reduce the budget deficit, according to a September 2012 National Journal poll.
The White House and the Republicans are at loggerheads over how to address entitlement spending, with Obama demanding higher taxes on the wealthy in return for cuts in the programs and Republicans refusing to consider any higher levies.
That impasse led to the automatic spending cuts — $85 billion this year and $1.2 trillion over the next nine years.
The sequestration hits at a time when financial markets aren't showing concern about U.S. debt levels. Yields on 10-year Treasury notes were 1.94 percent at 5 p.m. yesterday in New York, compared with an average of 4.88 percent over the past 20 years. Stocks have jumped, with the Dow Jones Industrial Average rising to a record yesterday.
Still, the automatic cuts will slow economic growth by 0.5 percentage points of GDP and cost the economy 350,000 jobs, according to the median estimate of private forecasters surveyed by Bloomberg News. The spending cuts come on top of the increase in marginal income tax rates for high earners and the expiration of the payroll tax cut. All the measures together will depress U.S. growth this year by 1.5 percentage points to 1.4 percent, according to the CBO.
Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee Feb. 26 that the "additional near-term burden on the recovery" from the sequestration "is significant."