Automatic cuts set to take effect today will pinch U.S. government functions as the country enters a more austere era that could push discretionary spending as a share of the economy to its lowest level in at least 50 years.
U.S. lawmakers locked in partisan feuds are turning to across-the-board cuts in national security, education and anti- poverty programs rather than structural changes to retirees’ benefits and the tax code.
Discretionary spending -- which excludes Medicare and Social Security -- will fall to 5.3 percent of the gross domestic product by 2023, the lowest level since at least 1962, according to a Brookings Institution report released yesterday. That’s down from 8.3 percent in 2012.
“We keep putting more pressure on a shrinking part of the pie,” South Dakota Senator John Thune, a member of the Republican leadership, said in an interview.
In part because of political deadlock, the U.S. hasn’t resorted to austerity measures like those in Greece, Spain and the U.K. Still, the lack of political consensus has led to more than $3 trillion in deficit reduction over the past two years, including the automatic cuts known as sequestration and higher taxes for top earners.
Even if Congress agrees to replace some of the cuts, lawmakers will be under pressure to adhere to the lower spending level that kicks in today. House Republicans are uniting behind a proposal to keep the government operating after March 27 that takes sequestration into account, reducing the spending cap to about $974 billion from the current level of $1.043 trillion.
Senator Ben Cardin, a Maryland Democrat whose state is home to tens of thousands of federal employees, said the increasing toll of cuts on discretionary programs is “extremely serious.”
“It’s going to have a major impact on our economy,” Cardin said in an interview. “It’s going to hurt people who rely upon governmental services. It’s going to hurt the federal workforce. It’s going to hurt contractors. People are going to get laid off, they’re going to get furloughed. It’s going to affect people’s lives.”
Lawmakers have resisted further tax increases and largely spared entitlement programs such as Social Security and Medicare that are projected to generate unsustainable future deficits.
“We’re doing it in the worst possible way,” said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington. “It’s the total inverse of smart budget consolidation.”
The paralysis embodied by sequestration will prevent the U.S. from investing in research, infrastructure and worker retraining as other countries are doing, Kirkegaard said.
In areas of the budget that are being hit hardest, the cuts will be seen over the next decade.
“They’re focusing on the wrong deficit issues,” said William Gale, a senior fellow at Brookings, who says more needs to be done to address structural, long-term deficits. “They’re reducing the deficits that happen to be good deficits and they’re not doing anything about the deficits in the future that happen to be bad deficits.”