Download Four Myths About the Defense Sequester

Economic Policy Program
Economic Policy Project
Four Myths About the
Defense Sequester
MYTH: All of the planned cuts
from the 2013 defense sequester
are in effect.
The defense cut was actually $16 billion less in Fiscal Year (FY) 2013 than
originally planned; some cuts were cancelled, while others were partially
pushed into the future by the American Taxpayer Relief Act of 2012 and the
March 2013 continuing resolution.
More importantly, the sequester cuts budget authority—the permission for
FACT: Relative to 2013, the
government agencies to spend money—but budget authority only turns into
actual cut to defense spending spending (outlays) over the course of several years. For example, in 2013,
THE TIME LAPSE BETWEEN GETTING AND SPENDING MONEY
due to sequestration will double Congress gave the Department of Defense (DoD) $3.2 billion in budget
authority
two new
Virginia
Class
submarines.
But that money
will be
In FY13, Congress gave DoD for
$3.2 billion for new submarines. in 2014 and triple
in 2015.
spent over seven years – the actual time it takes to build the submarines.
That money will be spent over 7 years. The Time Lapse Between Getting And Spending Money
$3.50
$3.00
(billions)
$2.50
+ + + + + + + = $2.00
$1.50
$1.00
$0.50
$0.00
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Total
Sources: Department of Defense; Bipartisan Policy Center calculations
www.bipartisanpolicy.org
While the sequester cut approximately $37 billion from
$621 billion in defense discretionary budget authority in
FY 2013, the Bipartisan Policy Center (BPC) estimates that
less than 40 percent of the resulting outlay cuts actually
occurred during FY 2013, thereby delaying much of the
impact.
Most Spending Cuts From FY13 Sequester Won’t Occur Until FY14 & Later
FY13 Defense Sequester Reductions
(in billions of dollars)
$60
$50
Cuts to
Budget
Authority
Cuts to Outlays (Actual Spending)
$40
$30
$20
$10
$0
FY2013
FY2013
FY2014
FY2015
FY2016
FY2017
Sources: Department of Defense; Bipartisan Policy Center calculations
MYTH: The sequester has not affected the economy, despite warnings that it would.
FACT: The defense sequester has already had small but measurable impacts on
economic growth and jobs. Those effects will get larger if we leave it in place.
640,000 JOBS
UNEMPLOYMENT
UP 0.3 PERCENT
As if New Orleans or Milwaukee didn’t exist
An analysis conducted by Macroeconomic Advisers for BPC
found that the defense sequester, if fully implemented, will
cut total economic output (gross domestic product (GDP))
by 0.37 percent in the final quarter of calendar year 2013,
compared to a world with no sequester.
Additionally, the economic harm, including higher
unemployment and slower economic growth, comes from the
cuts to outlays, which have not yet been fully implemented.
Therefore, that same Macroeconomic Advisers analysis
projects that the economic hit will increase over time,
and the fourth quarter of 2015 will see GDP over half a
percent lower, 640,000 fewer jobs in the economy, and
an unemployment rate three-tenths of a percentage point
higher because of the defense sequester – all else equal.
The reduction in GDP is equivalent to the output of a
metropolitan area the size of New Orleans or Milwaukee.
Remember, too, that this economic impact is from only
roughly half of the sequester – the other half falls on
domestic spending.
Although we can’t make detailed projections of the
economic impacts for the non-defense side, those cuts
will be similarly harmful to the economy. Thus, the whole
sequester will probably shrink GDP by more than one
percent and result in an economy with over a million fewer
jobs than would otherwise be the case at the end of 2015.
Four Myths About the Defense Sequester
| 2
MYTH: The defense budget is bloated with wasteful spending. Sequestration will
trim this fat without adversely impacting our national security.
FACT: Because the FY 2013 cuts were abrupt and across-the-board, the accounts
that pay for our ongoing security—training troops and providing them with arms
and equipment—were reduced, with real consequences for the military’s ability
to respond to crises.
Savings can and should be found in the defense
budget, but across-the-board cuts are a particularly bad
way to cut defense spending. There will inevitably be
unforeseen increased costs to the federal government from
inefficiencies caused by sequestration (e.g., cancelled or
delayed contracts, wasted planning).
And these “across-the-board” cuts only biased the military
further towards cutting investments in readiness. They
curtailed equipment maintenance and training for the
Army and Marines, steaming hours for the Navy, and flying
practice for the Air Force.
Moreover, the FY 2013 sequester exempted personnel
costs by law, so the brunt fell on force readiness and
modernization while personnel costs remained untouched
on their upward trajectory. The leadership of the Army,
Navy, Air Force, and Marines all agree that personnel costs
are starting to crowd out other important accounts.
A BAD WAY
TO CUT
SPENDING
As Chief of Staff of the Air Force Gen. Mark Welsh said in
his testimony at a November 7 Senate committee hearing
on the defense sequester, “If we are given the flexibility to
make prudent cuts over time, we can achieve the savings
required under current law. However, sequestration robs
us of that flexibility. We’re left with options that simply don’t
make business sense.”
Personnel costs have
$
$
DOUBLED
since 2000,
while the active duty force
shrunk
by 10 percent.
Four Myths About the Defense Sequester
| 3
MYTH: The sequester may not be the best way to cut spending, but our federal
debt problem is urgent and these cuts are a big step in the right direction.
FACT: The debt problems of the federal government are long-term and the
sequester does not address the real drivers of fiscal imbalance—rising entitlement
spending and an inefficient tax code. Moreover, the sequester will have almost
no impact on the nation’s debt burden.
The U.S. has a large amount of debt relative to the size of its
economy, which will eventually become a serious problem
if policymakers fail to make structural reforms. But the
sequester does not address the key long-term drivers of our
debt problems—the growth of Social Security, Medicare,
and Medicaid and the inability of our inefficient tax code to
raise enough revenue.
Otherwise, BPC projects that the sequester will delay the
point at which the U.S. debt exceeds the size of its economy
by only two years.
If you’d like to learn more about the defense sequester and
our methodology for the estimates above, please see our
reports:
Instead, more than three-quarters of the sequester cuts fall
on areas of the budget that are not projected to cause growth Indefensible: The Sequester’s Mechanics and Adverse Effects
on National and Economic Security.
in long-term
debt—defense
and FEDERAL
non-defenseDEBT
discretionary
SEQUESTER
DELAYS
REACHING 100% OF GDP BY ONLY 2 YEARS
Available at: http://bit.ly/1jn678n
spending. But those cuts will serve as a headwind to a more
robust recovery from the Great Recession.
From Merely Stupid to Dangerous: The Sequester’s Effects
Congress can avoid the economic and military harm of the
on National and Economic Security.
sequester and put the U.S. on a sustainable debt trajectory
Available at: http://bit.ly/17q32Po
if it can agree on a plan that restores discretionary funding
and addresses entitlements and the tax code.
Sequester Delays Federal Debt Reaching 100% of GDP by Only 2 Years
Public Debt as % of GDP
160%
BPC 2013 Baseline (Pre-Sequester)
140%
120%
100%
80%
60%
BPC 2013 Baseline (Post-Sequester)
40%
20%
0%
2013
2018
2023
2028
2033
2038
2043
Fiscal Years
Note: Baseline is from February 2013. The BPC Baseline assumes current law, except that: 1) funding for combat operations overseas winds
Note: The BPC Alterna0ve Baseline assumes current law, except that: 1) funding for combat opera0ons overseas winds down; 2) Medicare physician payments are frozen at the 2013 levels (“doc fix”); 3) the sequester is waived; 4) expiring tax provisions are
down; 2) Medicare physician payments are frozen at 2013 levels (“doc fix”); 3) the sequester is waived; 4) expiring tax extended as they have been in the past; and 5) aid for Hurricane Sandy is not extrapolated for future years.
provisions are extended as they have been in the past; and 5) aid for Hurricane Sandy is not extrapolated for future years. Sources: Congressional Budget Office (February 2013) and Bipartisan Policy Center extrapolations
Sources: Congressional Budget Office (February 2013) and Bipar?san Policy Center extrapola?ons www.bipartisanpolicy.org