2 Mar 2013

Apocalypse when? Sweeping budget cuts start today

There is no big bang. As last night’s deadline for sweeping cuts to Americas federal spending passed – what will the sequester mean, and who will it hurt?

President Obama was clear. “This is not going to be an apocalypse”, he declared. “It’s just dumb”. The automatic spending cuts to all discretionary government spending – known as the sequester – began at midnight on 1 March.

Although for most Americans, life will go on exactly as normal – for others, especially those employed in the defence sector which is bearing the brunt of the cuts, the first impact is already taking effect.

Last night’s efforts to forge an agreement between the White House and Congressional leaders got precisely nowhere: the Republicans are adamant that they will not countenance anything involving raising new tax revenues.

“Let’s make it clear that the president got his tax hikes on Jan 1st”, said House speaker John Boehner. “This discussion about revenue, in my view, is over. It’s about taking on the spending problem here in Washington.”

But the president has been just as emphatic, insisting that the GOP must come around to the idea of tax increases, or at the very least, closing tax loopholes, and demanding “a more balanced approach that asks something from everybody.”

Should they be afraid?

But after almost two years of manufactured economic crises, from the fiscal cliff to the debt ceiling fiasco, most Americans remain supremely uninterested in this one. Should they be afraid? Very afraid?

After all, although the headline figure for these cuts sounds draconian, they are spread out over ten years. No elderly person will see their pension vanish, no free school meals will be abolished.

It all depends where you work, and where you live. Furlough notices, requiring state employees to take several days of enforced, and unpaid leave, have already started going out.

This month, staff at the Bureau of Prisons will have to take 12 days off; workers at the Environmental protection agency will lose 13 days. That’s the equivalent of ten days annual pay, lost.

If nothing is done to resolve the political standoff with Congress – later this month teachers will begin getting similar letters. After school programmes will be cut. Scientific research grants will be slashed. Workers paid less will spend less – with knock on effects.

“It’s going to hurt individual people, and it’s going to hurt the economy overall”, Obama warned last night, as the Republicans accused him of simply trying to scare people.

No budget deal

Technically speaking, government funding runs out altogether on 27 March: there has still been no bipartisan budget deal. But there won’t be a total government shutdown, and the House will pass a temporary funding bill to head off that deadline.

So far the markets have remained sanguine: the Dow rose a few points on Friday. But as the political bickering continues, the patience of investors could start to wear thin.

The problem is that both sides believe they have an interest in keeping the stand-off going. Polls show that most people would blame the Republicans if the sequester cuts really begin to bite.

It all helps the Democrats paint the GOP as a party of extremists who will do anything to protect their rich friends from paying their fair share.

In his weekly radio address on Saturday, president Obama pinned the blame firmly on his opponents: “It’s happening because Republicans in Congress chose this outcome over closing a single wasteful tax loophole that helps reduce the deficit.”

And, he warned, it could eventually cost some 750,000 jobs and risk the entire economic recovery.

But the Republicans are just as determined to keep their promises on slashing big government and standing firm against tax rises. They are proposing a new plan of targeted cuts to replace the broad sweep of the sequester.

And so it begins. An economy struggling to recover from recession, struggling with the enormity of an overwhelming debt, where the common sense of economists is drowned out by the squabble of Washington politics.

The first weeks of the Obama second term have shown a president vowing to use the power of his office to drive through the agenda he promised. Now is the time.

Felicity Spector writes about US politics for Channel 4 News