Possible 2013 Budget Cuts to Be Specified Within a Month

The outlines of a broad set of possible cuts in federal domestic and defense-related programs in early 2013 should become more clear within the next month.  Under new legislation signed into law on Aug. 7, called the Sequestration Transparency Act, the Obama administration must lay out how an expected $109 billion in cuts will be implemented in 2013 unless Congress takes action to delay or stop them.

If they occur as required under current law, the cuts will be divided equally between defense and domestic programs. A few programs, including Social Security, Medicaid, Medicare and Pell Grants, were held harmless by Congress and will generally not be affected, but the remaining programs that were not protected will be subject to an across-the-board cut ranging from 7.8 to 9 percent, depending on which estimate is used. (The Congressional Budget Office has estimated the cut at 7.8 percent, the Center on Budget and Policy Priorities at 8.4 percent, and the Bipartisan Policy Center at 9 percent).
 
This across-the-board cut, called budget sequestration, resulted from a failure by Congress to compromise on an alternate deficit reduction plan last year. The newly enacted Sequestration Transparency Act gives the Office of Management and Budget 30 days to issue a report providing details on the required cuts.

Economists have warned that these spending cuts, combined with a simultaneous expiration of Bush-era tax cuts, could tip the economy back into recession. The Congressional Budget Office estimates that economic growth would be cut by four percentage points.

The Obama administration has made it clear that it would prefer not to make these budget reductions. In late June, in response to an inquiry from Rep. Ed Markey (D-MA), the U.S. Department of Health and Human Services indicated that, if implemented, the “National Institutes of Health (NIH) could potentially eliminate 2,300 new and competing research project grants, with nearly 300 fewer grants issued by the National Cancer Institute. … [Up] to 100,000 children would lose Head Start services and approximately 80,000 fewer children would receive child care assistance. In addition, approximately 12,150 fewer patients would receive benefits from our AIDS Drug Assistance Program. Approximately 169,000 fewer individuals would be admitted to substance abuse treatment programs and an estimated 14,200 fewer people who are homeless would receive assistance.”

Will these budget cuts actually take place?  This year’s elections will almost certainly determine the answer. If the result is a status-quo election where President Obama is reelected and Congress remains divided, a compromise may be forced by the pending budget crisis in early 2013. The details of the compromise will probably depend on public opinion and which political party feels it has gained the political advantage. However, if former Governor Romney is elected and Republicans gain control of both the House and Senate, the result will probably more closely reflect the details of the House Republican budget plan written by his new vice presidential pick, Rep. Paul Ryan (R-WI), and therefore involve a continuation of the Bush-era tax cuts and even deeper spending cuts for domestic programs.