Indefensible: The Sequester’s Mechanics and Adverse Effects on National and Economic Security

The full defense and non-defense sequester cuts for just next year could cost the economy more than 1 million jobs in 2013 and 2014.

Our nation faces a serious fiscal challenge, which requires making difficult budgetary decisions. Without action, growing deficits and debt will erode our prosperity and leadership role in the world. Yet, the current method for tackling this problem ? automatic spending cuts, totaling more than $1 trillion over a nine-year period, set to go into effect on January 2, 2013 ? is indefensible.

The sequester, as these cuts are known, is neither an effective nor rational form of deficit reduction. It will have serious repercussions on our national security, economic health, and public safety, while only minimally affecting our national debt. Furthermore, the adverse effects caused by anticipation of the sequester have already begun. Based on a plausible set of assumptions, our analysis indicates that:

• The Fiscal Year (FY) 2013 defense sequester will result in an indiscriminate 15 percent cut at the program, project, and activity level in the defense budget – and not a 10 percent cut, as is often assumed. Many domestic programs will face similar, though slightly smaller, across-the-board reductions.
• The full defense and non-defense sequester cuts for just next year could – due to their arbitrary and abrupt nature – reduce U.S. gross domestic product (GDP) by roughly half a percentage point in 2013 and cause more than one million jobs to be lost over the course of two years.
• Although scheduled to go into effect on January 2, 2013, the economic effects of the sequester will be felt well beforehand. Spurred by uncertainty about the sequester’s implementation and effects, department heads will slow spending, and business leaders have already started to curtail hiring in preparation for these arbitrary cuts.