Sequestration Cuts Will Build Slowly

Since Congress and the White House were unable to find an alternative route to reduce the deficit, automatic spending cuts known as sequestration went into effect Friday. Steve Inskeep talks to David Wessel of The Wall Street Journal about the impact of the cuts.

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STEVE INSKEEP, HOST:

President Obama ordered across-the-board federal spending cuts on Friday night. The $85 billion in cuts are spread across much of the government. The president and many Republicans have called the cuts unwise. But Congress passed them and the president signed them in 2011, and in recent days, they did not agree on a plan to revise or replace them.

We turn to David Wessel to find out what happens now. He is economics editor of The Wall Street Journal. David, welcome back.

DAVID WESSEL: Good morning.

INSKEEP: OK. There's been a lot of talk about the sequester. Now it's here. Is anything different today?

WESSEL: Not much. This is going to build slowly. Of course, the government does a lot of well-intentioned things, and then discovers they don't work so well. This one was designed to be unworkable, and now the government's trying to implement it.

There is some impact already: vacancies in some government agencies are going unfilled, trips cancelled. The big aircraft carrier, the Harry S. Truman, has been kept in port. And private contractors are probably doing things in anticipation of cuts. People who get extended emergency unemployment benefits are going to see them trimmed soon. But in terms of public services, it's probably going to be another month before things bite. Federal workers are being notified of furloughs, but won't have to take days off without pay for another month. Same goes for doctors and hospitals who are paid by Medicare. They face a 2 percent cut in what they're paid, but not until April 1st.

INSKEEP: OK. Does that mean that Congress still has time to argue over a possible solution here?

WESSEL: Well, yes. They have roughly a month. But Republicans and Democrats are kind of dug in. The White House says this is dumb. It wants to replace the spending cuts known as sequester with tax increases or, as they prefer to call them, loophole closers and alternative spending cuts. The Republicans say they want to replace them only with spending cuts. After all, they say, we agreed to raise taxes earlier this year. I think the back-and-forth is likely to go on for a few days. There is another deadline approaching. There seems to be a series of them now. On March 27th, the government runs out of spending authority, and there's a lot of talk about somehow wrapping a resolution to this sequester dilemma into a bill that keeps the government operating through the end of the fiscal year.

INSKEEP: And what if they don't?

WESSEL: Well, Republicans say $85 billion is a drop in the bucket, given that the government spends three-and-a-half trillion dollars a year. But the cuts are largely focused on one-third of the federal budget. Most government benefit programs are exempt. It slices 8 percent off of defense, but concentrates that all on people outside of the uniformed military. It takes 5 percent off of domestic spending, but it concentrates a year's worth of spending cuts in the remaining seven months of the fiscal year. I mean, the law was meant to be unworkable, so it gives the budget office very little flexibility. Each of 1,200 accounts has to be pared by some amount. The White House Budget Office listed them on Friday. It was an 83-page list, a little bit from each one. Even the budget office is supposed is take a hit: $5 million from its $90 million budget this year.

INSKEEP: What about the people who passed this law that they designed to be unworkable, Congress? Will they be affected if they don't change the situation here?

WESSEL: Well, that's a good question, Steve. The salaries of members of Congress will not be reduced. The Constitution prevents that. But congressional staff will get squeezed. The House of Representatives spends $1.2 billion a year on its staff, and it has to find $60 million in savings over the next seven months - probably be some furloughing there. And Speaker Boehner already has canceled those overseas trips that congressmen so cherish. So they'll feel a little pain.

INSKEEP: Is the economy strong enough to withstand whatever blow is coming here, David Wessel?

WESSEL: Well, it certainly isn't going to help the economy. Ben Bernanke, the Fed chairman, said last week, the sequester - if it persists - means the economy will grow about half a percentage point slower this year than it would have otherwise. That's $90 billion less in goods and services, and he said 750,000 fewer jobs. So it will hurt if it sticks.

INSKEEP: OK. And what would a deal look like if the lawmakers ever came up with one?

WESSEL: Both sides insist they want to use the sequester as a lever to get to a bigger deal. But there's so little trust between the players that that looks like a stretch, it seems to me. So the most likely deal, if there is one, will replace this year's spending cuts with a package that relieves some, but not all of the pressure on this year's spending, makes some money-saving changes to federal benefit programs, like farm price supports, and does some relatively uncontroversial revenue-raising with some promise to work on that bigger reform that seems so elusive on taxes and on health and retirement benefits.

INSKEEP: Muddling through. David Wessel of the Wall Street Journal. Thanks, as always.

WESSEL: You're welcome.

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