Last summer’s debt ceiling increase deal could cost Americans 2.14 million jobs next year as a result of the across-the-board budget cuts George Mason University Economist Stephen Fuller argues.
After releasing his report at the Hyatt Regency Washington on Capitol Hill Tuesday, Fuller spoke at the Heritage Foundation, calling planned domestic and defense cuts “a true guillotine.”
Last summer, Republicans and Democrats passed the Budget Control Act, which mandates $1.2 trillion in budget cuts, starting January 2, 2013, as part of an agreement to increase the U.S. debt ceiling. The act specifies that if cuts are not made, across-the-board cuts – also known as sequestration- will be made automatically to most government run entities, including the Department of Defense. Fuller’s study reveals the devastating effect of those cuts.
Marion C. Blakey, President and CEO of the Aerospace Industries Association, said, “in the pressure of trying to deal with the debt ceiling, this was poorly thought through.”
She noted that Senators Jeanne Shaheen (D-NH) and Kelly Ayotte (R-NH), as well as Mayors Jerry Sanders (San Diego) and Greg Stanton (Phoenix) joined her and Fuller to release the report and oppose the cuts.
Fuller’s report estimated that the cuts could cost the economy $215 billion next year. With a projected growth of only $315 billion, this amounts to “the loss of about two-thirds of projected growth.”
“That’s enough to drive the economy into a recession next year,” Fuller added.
Both support federal spending cuts, but “the argument is how you do it,” Fuller said.
He compared spending cuts to a diet program. “When you’re trying to lose extra weight,” he asked, “do you stop eating for 30 days, or do you work out and avoid junk food?” These cuts, he explained, equate to “going cold turkey,” when America really needs “a long range constructive approach.”
Blankey agreed. She explained that, when the government mandates general cuts, “you usually take from the new areas,” halting innovation and important groundbreaking research. Instead, she suggested that Congress “deal with the issues of entitlements and revenue.”
As reported by the Washington Free Beacon, a study by the American Enterprise Institute’s Nicholas Eberstadt showed that the largest growth in federal spending over the last 25 years involved entitlements: Medicare and Social Security.
However, with both of the entitlement programs exempt from the sequestration’s budget cut equation neither will be affected by looming cuts.
