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Silver Linings in the Sequester?

By: CBS News Email
By: CBS News Email

CBS Web Copy

The dreaded sequester takes effect today as $85 billion in automatic cuts to 2013 federal spending begin rolling in, slashing services and sowing all manner of chaos, according to government officials who have warned for months about the harmful economic impact of allowing the cuts to proceed.

Nobody is particularly happy about it. President Obama and congressional Democrats have sounded the alarm most urgently, warning that the cuts - half domestic, half defense - will sideline an economic recovery still struggling to gain traction and jeopardize national security by crimping military readiness.

Many Republicans have raised similar concerns about military readiness and about the indiscriminate nature of the spending cuts, which are not targeted but levied across the board. Even Republicans who argue that we can and must absorb the magnitude of spending cuts contained in the sequester admit that cutting indiscriminately is a "stupid" way to reduce government outlays.

In short, depending on whom you ask, the sequester falls somewhere poorly devised and downright catastrophic.

But is there some silver lining to be found in all this drama? Despite the dire warnings from policymakers and economists, could the impact of sequestration be less harmful than meets the eye, or perhaps even beneficial in some ways?

With those questions in mind, here are four reasons sequestration might not bite as painfully as some expect - and might even yield some unexpected benefits along the way:

Most entitlement programs are exempt

During the negotiations that produced the sequester, Democrats successfully pushed to exempt most forms of politically sensitive entitlement spending from the automatic cuts.

As a result, Social Security, Medicaid, veterans' benefits, unemployment insurance, and food stamps will not see any reduction in funding. Medicare beneficiaries were also spared the axe, while Medicare providers will see only a 2 percent reduction in payments. Mr. Obama's healthcare bill, some recall, also opted to slash payments to Medicare providers in lieu of targeting beneficiaries.

Cuts to entitlement benefits are among the most politically sensitive of deficit reduction proposals - Social Security, for example, is called the "third rail" of American politics because politicians who propose any significant alterations to the program risk being electrocuted by the political fallout.

But thanks to prior negotiations, that's a bridge lawmakers will not have to cross, at least not in this round of deficit reduction talks.

The cuts' impact won't be immediate - and could be mitigated

The cuts legally take effect when the president signs the sequestration order today, but that doesn't necessarily mean that the rug will be swept out from under the American economy by tomorrow morning. Due to a variety of exigent factors, many of the cuts are staggered in a way that will allow government agencies to contain the damage, at least temporarily. Many more legally require a notification period that could delay their impact.

Federal employee furloughs, for example, require a 30-day notification period before legally taking effect. As a result, even furloughs announced today will take about a month to work their way through the system, potentially providing policymakers a respite as they negotiate a replacement for the cuts.

In addition, not every agency affected has identified how the cuts will be carried out. The Office of Management and Budget will release a report today detailing the specifics of each agency's cuts, at which point the relevant actors will begin implementation. In many cases, those details will take time to develop.

Finally, some Republican members of Congress are developing legislation that would give the executive branch greater latitude in allocating the cuts across each agency. The thinking is that greater freedom of movement would allow the administration to implement sequestration in the most painless way possible, redirecting some of the most pernicious cuts toward other, less critically important functions of each agency.

The cuts are likely to proceed, in other words. But policymakers have a variety of tools at their disposal that would allow them to delay or ameliorate the full impact of the budget tightening.

An opportunity to target wasteful spending?

Some Republicans who have long sought to reduce wasteful spending are grateful, at least, that the sequester has begun a conversation.

"There are many of us who realize we have got to get spending under control," Sen. Patrick Toomey, R-Pa., told the New York Times. The sequester, he said, "is a crude way to do it, but at least it's moving in that direction."

Sen. Tom Coburn, R-Okla., a longtime critic of what he sees as government excess, agreed. "Look - the federal government is twice the size it was 11 years ago," he said last week on "Fox News Sunday". "What sequestration is, it's a terrible way to cut spending - I don't disagree with that. But to not cut 2.5 percent out of the total budget over a year when it's twice the size it was 10 years ago? Give me a break."

"This crisis is made up - it's been created," Coburn insisted. "There are easy ways to cut this money that the American people will never feel."

Even some Democrats spy opportunity in the cuts, half of which will be carved out of a defense budget that many Democrats have long seen as bloated with waste.

Rep. Raul Grijalva, D-Ariz., a liberal stalwart in the House, told the New York Times that cuts in military spending could finally force the Pentagon to modernize its procurement process and reduce excessive contracting expenditures.

And during the 2011 debate that led to the sequester becoming law, Rep. Xavier Becerra, D-Calif., said, "Sequestration will give us progress whether we like it or not. I'd rather have a human hand fashioning the progress than, as I've said before, the blunt edge of a guillotine deciding what progress looks like."

Still, he said, "Any time you can get $1.2 trillion [the cuts' total amount over 10 years] in savings, that's not failure."

Uniformed military, war spending will not be affected

Perhaps aware of the firestorm that would ensue if Congress slashed funding for wartime operations in Afghanistan or for uniformed military personnel, lawmakers specifically shielded payments to uniformed members of the armed services and spending related to the prosecution of the Afghanistan war from the indiscriminate nature of the cuts.

Specifically, compensation payments to military personnel were exempted from sequestration, as are all Veterans Affairs Department programs. Any funding directly related to America's war in Afghanistan was also spared the knife of the sequester as troops in the central Asian country prepare for a 2014 withdrawal.

However, funding for programs like TRICARE, which connects military members with civilian healthcare systems, tuition assistance, and family support programs could be slashed, leading to some peripheral impacts on military members and their families.


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