Despite the dawning of the latest “fiscal cliff” — the sequester — the world appears not to have fallen apart, not withstanding the dire predictions by the Obama White House. Even the president has now admitted it's not that bad, in a February 28 speech to businessmen, noting,
I should point out and I'm sure you've heard from a number of experts and economists that this is not a cliff, but it is a tumble downward. It's conceivable that in the first week, the first two weeks, the first three weeks, the first month — that unless your business is directly related to the Defense Department, unless you live in a town that is directly impacted by a military installation, unless you're a family that now is trying to figure out where to keep your kids during the day because you just lost a Head Start slot — a lot of people may not notice the full impact of the sequester.
Obama also claimed in the same speech, however, that “this is going to be a big hit on the economy.”
But the president is factually wrong about this “fiscal cliff” being even a “tumble downward” in overall federal spending. It's more of a slight incline upward, as the sequester “cuts” will not be sufficient to stop federal spending from increasing. The impact of the sequester would be to cut $110 billion per year from projected discretionary spending annually over the next 10 years (though only $85 billion in fiscal 2013). Overall federal spending would continue to trend upward even with the “cuts” of the sequester, and the federal government will continue to run deficits close to $1 trillion annually.
Sequestration was put into the lawbooks by the Budget Control Act of 2011, which was passed during the debt-limit debate of the summer of 2011. The sequester could be avoided if Congress passed $1.2 trillion in cuts from the projected deficits of more than $7 trillion that would be added to the deficit over the same 10-year time period. But after a year and a half, Congress and the White House have not agreed to a penny more in spending cuts (though they have increased payroll and income taxes by some $600 billion over the same time period).
In other words, the sequester would have been avoided if Congress had passed spending bills in the past 18 months that would have created another $5.5 trillion in deficits over 10 years, instead of the $7 trillion they planned on creating. None of those cuts was enacted.
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