The government reaching, breaching, and re-establishing its own spending limit is hardly a new phenomenon. We did it in 2010 with a total debt burden of $14.3 trillion, largely a product of wars in the Middle East and post-crisis stimulus spending. Congress raised the ceiling by $900 billion to $15.2 trillion, but we hit that in 2011, at which time $1.2 trillion was added to fund operations while policymakers negotiated the fiscal cliff.
Between the last-minute half-deal that was the fiscal cliff tax deal and the awkward rollout of the sequestration spending cuts, America managed to hit its federal debt limit again at $16.4 trillion at the end of 2012. The ceiling was temporarily suspended and later increased to $16.7 trillion, at which it now ostensibly sits. If this seems like a soul-crushingly large number, that’s because it is: the total current-dollar market value of America’s economic output in the second quarter was $16.6 trillion.
Treasury data from July shows that the U.S. budget deficit this year to date is $607 billion, down substantially from $974 billion in 2014 and on track to hit $759 billion by the end of the year. This compares against a total 2012 budget deficit of $1.1 trillion in 2012, and the decline can mostly be attributed to the fiscal cliff tax deal, which increased government revenue, and the sequestration spending cuts, which decreased outlays.
But even though the deficit is shrinking, it is still just that: a deficit. The United States has reached its borrowing limit and is spending money it does not have. The U.S. Treasury has given Congress until Labor Day — September 2 — before the extraordinary financing measures adopted on May 17 can no longer prevent the debt ceiling from crashing down on Uncle Sam’s head. Congress, facing a particularly dense political environment and anemic economic growth, is once again racing against a ticking clock.
The fight to balance the budget is bound to have some casualties. The GOP has its crosshairs set on President Barack Obama’s health care plan, and taxes could very well go up before the day is won. At the same time, the sequester has already taken a hatchet to some federal agencies, which were given a mandate to cut costs. In July, the Washington Post assembled an approachable summary of the impact so far. Here are a few examples, with additional information from the most recent budget report.
In February, Secretary of Agriculture Tom Vilsack warned that should sequestration occur, his department would have to eliminate rental assistance for more than 10,000 low-income rural residents. These residents — typically elderly, disabled, or single female heads of households — earn a monthly income of approximately $803. Vilsack said that “these Americans are the least able to absorb rent increases and would face very limited options for alternate housing if landlords increase rents to cover the loss of the rental assistance payments.”
According to the Post, this prediction turned out to underestimate the impact. As many as 15,000 people may have rental assistance interrupted or removed by mid-August. However, data from the budget report show that year-to-date government outlays at the Department of Agriculture’s Rental Assistance Program have increased from $929 million to $948 million.
2. Census Bureau
Former U.S. Secretary of Commerce Rebecca Blank (retired May 31) wrote to Sen. Barbara Mikulski (D-Md.) saying that sequestration would have to cut a total of $46 million from the Census Bureau. The key impact of this would be a delay of up to six months in research of critical economic data.
Blank explains: “The last benchmark of economic statistics supporting America’s assessment of Gross Domestic Product and other key economic indicators was taken in 2007, prior to the recession. If the sequestration cuts move forward, the Census Bureau will be forced to impose a six-month delay in releasing vital statistics for these indicators, putting at risk our ability to take accurate stock of current economic conditions and well-being and potentially impacting policy making and economic decisions in the private sector.”
At last check, the release of these statistics has in fact been delayed. Data from the budget report show that year-to-date outlays to the Bureau of the Census declined from $1 billion YTD in 2012 to $937 million YTD in 2013.
In February, Deputy Secretary of Defense Ashton Carter testified before the Senate Appropriations Committee to say that as a result of sequestration spending cuts, “most services and defense agencies will begin laying off a significant portion of our 46,000 temporary and term employees,” with the exception of mission-critical activities but in addition to freezing civilian hires.
The Washington Post reports that defense officials have had to carry out these layoffs. The Department of Defense was also forced to curb maintenance programs, although some appropriations were made to continue work in some cases.
Of all the departments affected, the DoD had a lot on the table because of the tremendous size of its civilian workforce: 800,000. Expecting to furlough a massive number of employees, Carter testified, “if our employees are furloughed, I intend to give back to the Treasury the same portion of my salary, and I encourage all of us — Executive Branch and Legislative Branch — to do the same.”
The budget report shows that YTD outlays to DoD military programs fell from $539.6 million in 2012 to $506.6 million in 2013, while civil programs outlays fell from $67.1 million to $47.6 million.
4. Coast Guard
Coast Guard Rear Adm. Charles D. Michel is currently the person responsible for trying to intercept the 500 metric tons of cocaine that is estimated to enter the United States each year. According to Michel, sequestration spending cuts will reduce the amount of cocaine that is intercepted by 38 metric tons because there are simply fewer resources available to combat drug traffickers. He estimates that this will result in $1 billion in additional profits for drug dealers.
“Our adversary, on the other side, has never been better,” Michel told Federal News Radio. “They actually have the ability now to operate diesel-electric submarines that go from Ecuador to Los Angeles unfueled, carrying 7 to 10 metric tons of anything that you want.” This is to say nothing of the aircraft and surface vessels typically deployed to transport drugs, which are also difficult to track and intercept without the right resources.
“The amount of cocaine … is more than all the cocaine than was seized last year within the borders of the United States by all the law enforcement agencies — federal, state, local and tribal — just that increment, 38 metric tons, from sequestration cuts,” Michel said.
YTD outlays actually increased slightly in 2013, from $8.57 to $8.6 million.
Secretary of Labor Seth Harris wrote Mikulski in February, saying: “More than 3.8 million people receiving Emergency Unemployment Compensation benefits will see their benefits reduced by as much as 9.4 percent. Affected long-term unemployed individuals would lose an average of more than $400 in benefits that they and their families count on while they search for another job.”
The Post reports that benefits have been reduced by as much as 11 percent.
Harris continued: “Smaller unemployment checks will also have a negative impact on the economy as a whole. Economists have estimated that every dollar in unemployment benefits generates $2 in economic activity.”
YTD outlays to the Department of Labor declined from $90.1 million in 2012 to $69.9 million in 2013.
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