Unintended consequences to cuts no one thought would happen
WASHINGTON (AP) - It's not the first time that government economic engineering has produced a time bomb with a short fuse.
Back in 2011, few lawmakers, if any, thought deep and indiscriminate spending cuts, totaling about $85 billion and now starting to kick in, were a smart idea.
The across-the-board cuts, set up as a last-resort trigger and based on a mechanism used in the 1980s, are a reality largely because President Barack Obama and House Speaker John Boehner, R-Ohio, failed to find a way to stop them.
Republicans, influenced by tea party and other conservative factions, insisted on just spending cuts to narrow the deficit. Tax increases were out.
Obama and the Democratic-run Senate didn't budge from a mix of cuts and increased tax revenues.
"Arbitrary" and "stupid" Obama called the auto-pilot cuts, known as sequester.
But history shows a long trail of unintended consequences from government actions - or inaction:
-President Franklin D. Roosevelt, after a solid re-election victory in 1936, believed that the Great Depression was winding down. Unemployment was declining and economic activity was coming back.
Roosevelt and Congress believed it was time to cut free-flowing government spending and raise taxes. The Federal Reserve tightened its financial reins. But the fragile economy couldn't withstand the blows. The Depression roared back, lasting until the 1940s when U.S. involvement in World War II finally revived the economy.
-President Ronald Reagan's ambitious 1986 overhaul of the tax code simplified taxes and closed many loopholes, including repealing the popular tax deduction for credit-card interest. Then people started borrowing heavily against fast-rising equity in their homes; that interest still was deductible.
But the practice eventually helped put millions of homeowners under water on their mortgages when the housing bubble burst, contributing to the 2007-2009 recession.
-The Fed has kept short-term interest rates unusually low and printed money to keep downward pressure on longer-term rates, easing borrowing for businesses and individuals.
Yet retirees and other savers are earning near-zero interest on bonds and savings accounts, and many investors are jumping into riskier transactions in search of higher returns.
Fed Chairman Ben Bernanke and many mainstream economists argue that the Fed's stimulus policies have helped the housing and financial sectors recover and kept the downturn from getting worse.
One leading Fed critic Sen. Bob Corker, R-Tenn., accused Bernanke at a hearing last week of "throwing seniors under the bus" by driving down interest rates on their savings to almost nothing.
-The tax cuts of 2001 and 2003 were first proposed by Texas Gov. George W. Bush as he campaigned for president in 2000. At the time, the economy was enjoying rare multi-year budget surpluses and government economists were predicting surpluses well into the future. Bush told cheering audiences his tax cuts would return to taxpayers "what is rightfully yours."
Those cuts long have outlived the surpluses, which vanished in Bush's first year in office. Deficits returned with a vengeance and have grown ever since.
But most of them remain today, trimmed only slightly by the New Year's deal that ended Bush's tax breaks for households making over $450,000 a year.
Economists view those tax cuts as one of the biggest drains on the Treasury, and a major contributor to the spiraling government debt.
-Wars in Vietnam, Afghanistan and Iraq lasted far longer and cost much more, in terms of U.S. lives and dollars, than anticipated.
-Social Security has become one of the most expensive federal programs ever. When it was created in the 1930s, the average life expectancy was about 65. Longer life expectancies and the coming retirements of millions of baby boomers have put enormous strains on Social Security, as well as Medicare and Medicaid.
And now the sequester.
"It's not hard to come up with something better, yet all efforts to do so went down the toilet for various reasons," said economist Bruce Bartlett, who held economic posts in the Reagan and first Bush administrations.
"And I think people didn't realize how wedded Republicans are to not raising taxes."
Still, no one really thought the cuts would happen, he added.
Stan Collender, a former staffer on both the House and Senate budget committees, said Congress is "very short-term focused. The longer-term consequences are of very little concern to people who have to run for re-election every two years," said Collender, now a partner at Quorvis Communications, a financial consulting firm.
More House districts have been redrawn in recent years with political factors in mind, and that's tended to concentrate conservatives in Republican districts and liberals in Democratic ones.
And set the terms of the debate on Capitol Hill.
"If people in your district are hell bent on cutting spending, even if it hurts the economy, and applaud your intransigence, then that's going to be your priority and your vote, even if it's not necessarily good for the country," Collender said.
The sequester now in play is actually an updated version of the Gramm-Rudman-Hollings Act of 1985. There also was a small sequester in 1986, and a big one planned for 1990.
The latter was avoided only after President George H.W. Bush broke his "no new taxes" pledge to join Democrats in a deficit-reduction compromise that raised taxes.
There was a huge GOP backlash, one that many politicians believe contributed to Bush's 1992 re-election defeat to Democrat Bill Clinton.
Clearly not the consequence Bush had in mind
Back in 2011, few lawmakers, if any, thought deep and indiscriminate spending cuts, totaling about $85 billion and now starting to kick in, were a smart idea.
The across-the-board cuts, set up as a last-resort trigger and based on a mechanism used in the 1980s, are a reality largely because President Barack Obama and House Speaker John Boehner, R-Ohio, failed to find a way to stop them.
Republicans, influenced by tea party and other conservative factions, insisted on just spending cuts to narrow the deficit. Tax increases were out.
Obama and the Democratic-run Senate didn't budge from a mix of cuts and increased tax revenues.
"Arbitrary" and "stupid" Obama called the auto-pilot cuts, known as sequester.
But history shows a long trail of unintended consequences from government actions - or inaction:
-President Franklin D. Roosevelt, after a solid re-election victory in 1936, believed that the Great Depression was winding down. Unemployment was declining and economic activity was coming back.
Roosevelt and Congress believed it was time to cut free-flowing government spending and raise taxes. The Federal Reserve tightened its financial reins. But the fragile economy couldn't withstand the blows. The Depression roared back, lasting until the 1940s when U.S. involvement in World War II finally revived the economy.
-President Ronald Reagan's ambitious 1986 overhaul of the tax code simplified taxes and closed many loopholes, including repealing the popular tax deduction for credit-card interest. Then people started borrowing heavily against fast-rising equity in their homes; that interest still was deductible.
But the practice eventually helped put millions of homeowners under water on their mortgages when the housing bubble burst, contributing to the 2007-2009 recession.
-The Fed has kept short-term interest rates unusually low and printed money to keep downward pressure on longer-term rates, easing borrowing for businesses and individuals.
Yet retirees and other savers are earning near-zero interest on bonds and savings accounts, and many investors are jumping into riskier transactions in search of higher returns.
Fed Chairman Ben Bernanke and many mainstream economists argue that the Fed's stimulus policies have helped the housing and financial sectors recover and kept the downturn from getting worse.
One leading Fed critic Sen. Bob Corker, R-Tenn., accused Bernanke at a hearing last week of "throwing seniors under the bus" by driving down interest rates on their savings to almost nothing.
-The tax cuts of 2001 and 2003 were first proposed by Texas Gov. George W. Bush as he campaigned for president in 2000. At the time, the economy was enjoying rare multi-year budget surpluses and government economists were predicting surpluses well into the future. Bush told cheering audiences his tax cuts would return to taxpayers "what is rightfully yours."
Those cuts long have outlived the surpluses, which vanished in Bush's first year in office. Deficits returned with a vengeance and have grown ever since.
But most of them remain today, trimmed only slightly by the New Year's deal that ended Bush's tax breaks for households making over $450,000 a year.
Economists view those tax cuts as one of the biggest drains on the Treasury, and a major contributor to the spiraling government debt.
-Wars in Vietnam, Afghanistan and Iraq lasted far longer and cost much more, in terms of U.S. lives and dollars, than anticipated.
-Social Security has become one of the most expensive federal programs ever. When it was created in the 1930s, the average life expectancy was about 65. Longer life expectancies and the coming retirements of millions of baby boomers have put enormous strains on Social Security, as well as Medicare and Medicaid.
And now the sequester.
"It's not hard to come up with something better, yet all efforts to do so went down the toilet for various reasons," said economist Bruce Bartlett, who held economic posts in the Reagan and first Bush administrations.
"And I think people didn't realize how wedded Republicans are to not raising taxes."
Still, no one really thought the cuts would happen, he added.
Stan Collender, a former staffer on both the House and Senate budget committees, said Congress is "very short-term focused. The longer-term consequences are of very little concern to people who have to run for re-election every two years," said Collender, now a partner at Quorvis Communications, a financial consulting firm.
More House districts have been redrawn in recent years with political factors in mind, and that's tended to concentrate conservatives in Republican districts and liberals in Democratic ones.
And set the terms of the debate on Capitol Hill.
"If people in your district are hell bent on cutting spending, even if it hurts the economy, and applaud your intransigence, then that's going to be your priority and your vote, even if it's not necessarily good for the country," Collender said.
The sequester now in play is actually an updated version of the Gramm-Rudman-Hollings Act of 1985. There also was a small sequester in 1986, and a big one planned for 1990.
The latter was avoided only after President George H.W. Bush broke his "no new taxes" pledge to join Democrats in a deficit-reduction compromise that raised taxes.
There was a huge GOP backlash, one that many politicians believe contributed to Bush's 1992 re-election defeat to Democrat Bill Clinton.
Clearly not the consequence Bush had in mind
The sequestration cuts were suppose to be non-political and everyone in government must take the across the board cuts.  The government labor union and cronies want to politicize the cuts by targeting the cuts by firing specific personnel, cutlet the non-loyal union members, where it will hurt the tax payers the most and keeping loyal cronies happy with raises.
The Democrat Senates refusal to write a budget is what trigger the sequestration cuts.  The Democratic Senate have not written a budget for over 4 years.  Budget are supposed to be written every two years!  Without a budget there are no regular order in appropriations committee or order in the Congress, therefore any new expenditure which adds to the National Debt come under automatic trigger of sequestration cuts.  OMB (Office of Management and Budget) under President Obama's administration have been ordered by laws to initiate across the board cut.  These are President Obama's cuts because the signature on the Sequestration Cuts comes from the Oval Office to his department OMB.  Please learn to read!
PLEASE LEARN TO READ.
Please read the law of the land which brought about the sequester, Congressional Research Service, Budget "Sequestration" and Selected Program Exemptions and Special Rules, by Karen Spar Coordinator, January 10, 2013.  The current budget sequestration was an Democratic product, Budget Control Act of 2011 (PL 112-25), Statutory Pay-As-You-Go Act 2010 (PL 111-139)  The Budget Control Act of 2011 passed with Democratic Senate voting (45 yea, 6 nay) passing with a super majority 74 to 26 signed into law by Obama.  The Statutory Pay-As-You-Go Act 2010 was introduced in House by Dem. Majority Leader Hoyer and co-sponsored by 168 Democrats, passed house 265-166 and passed the Senate as a super majority vote of 60-39 and signed into law by Obama.  In both cases if the spending exceed the $1.2 trillion in cuts, the sequestration cuts is automatically triggered.  Therefore the current sequestration was triggered by the Democrats overspending.  This is now the law of the land and waivers can only be passed with a supermajority, it's written into the law.  And the first time the definition can be changed (in these laws) is 2021.  After the election of third president from today, 16 house election cycle and two senate election cycles.  The Sequestration laws were promoted by Obama and Democratic Senators and Democratic House members and passed as supermajority laws of the land.
Thank you Speaker Jon Boner for taking another step towards turning this country third world. Why weren't the streets paved with gold after 8 years of george w bush?
Obamer don't seem so smart anymore and he's not as well spoken when he was firing up the masses back in'08
did obama start dipping?
technology was created to be cheaper and better now we have none at all ? what would we do if we stopped all the drugs? yet i rather not drive a pop can. or fly in one i might add.
It is, IMHO, EXACTLY what BHO WANTS as a lack of a written budget allows unbridled and unaccounted spending on things that he and others may not WANT to have come into the revealing glare of daylight.
There is NOTHING unintended about this. The actor is standing in front of the american public and lying about his intentions. Well of COURSE the cuts land where its visible, painful and difficult for the maximum number of folks. This is nothing more than the presidential / congressional felons punishing the American people for Congress's failure to actually DO THEIR JOB.Â
Arbitrary and stupid? IT WAS OBAMA'S IDEA.....
Unintended consequences. That is hilarious. Obama and the democrats approved the sequester deadline in the first place. Any idiot can put 2 and 2 together and figure out that no one failed to reach any deal on this. The republicans never intended to make a deal.
I'm going to call my bank tomorrow and tell them I cannot fund my future purchases, but since the government does it, it will be OK to write plenty of checks.....
It's still Bush's fault! I went to the grocery store today for a sale on bacon, and it was all gone when I got there late-also Bush's fault! Time to focus on who's doing what NOW...not who did what in the past.
yep, the Romney bush needs to be pulled, they r not the pres.....
@#1HawksFan We cannot pretend that history has no impact on our today and there's nothing wrong with an article that explains how we got to the situation we're in. Whether you like it or not, the decisions of past leaders DO have impact and it DOES matter. If we blindly ignore the lessons of the past and push ahead with short-sighted decisions, we will be no better off.
@dontneedheels The intent of my comment was to point out that we also need to hold Obama responsible-it is not entirely Bush's fault.
@#1HawksFan If we're still dealing with the un-repaired consequences of Bush's actions, aren't we allowed to at least acknowledge his existence, or is that not OK with you? Jeeze Louise.
@Sutekh @Machinehead @dontneedheels The intent of my comment was to point out that we also need to hold Obama responsible-it is not entirely Bush's fault.
And when are they going to give back the raises that they gave themselves?Â
If the different departments can't find 2.5% to cut they should be replaced. These cuts don't have to hurt anyone unless someone wants to make a point and makes dumb cuts. We should be cutting more.
Will the President do the cutting where it will have the least financial effect on tne people or will he have the cuts hurt as much as possible to blame the House and Republicans?
@dmw2913: Â The cuts are spelled out in the sequester law. Â Basically they are across the board so there is not much to do except do it. Â The department administrators will have some leeway as to were in their budget they will cut, but the dollar amount they have to eliminate is already known.
@usnrbb @dmw2913 The House passed a bill giving the President the option to do just that, but the Senate did nothing with it.
@dmw2913Â @usnrbb In other words, they tried to pass the buck - and blame - to him. They don't have the melons to accept their share of the penalty they forced on the country - THEY have been calling for nothing but massive cuts, and now they, and we, are seeing just what that means.
Sticking to just one flavor is not a solution - yes there are cuts needed, but there are also many tax perks for corporations that are simply no longer justified, especially not in this economy. As this sward slash takes root, people are going to see the utter folly of the TP way.
gloom and doom about the little people. very true. but where are the comments about federal gov't waste and abuse?   and LOTS of it.  Are ANY of Obama's staff being furloughed? any congressmen or women?  So Obama points to the trickle down to "us", but NEVER addresses the waste in his own backyard.
These people don't have any idea what they are talking about, not 2 minutes ago on KOMO, they had an ABC reporter give a segment that included an item about an "air force carrier".Â
Does Congress have to take furloughs or budget cuts to help obtain the 85 Billion reduction/cut goal.
@J LAKE Well, the way we saw the Republican members of the House heading for the airport on Thursday, that may have been what they had in mind.
For many of the listed effects, real and possible, you can then extrapolate outward on those businesses/people who train, educate, supply, construct, etc., that will also be taking hits. We do not need more unemployment, reduced benefits, long delays in essential services, that will be the result.
If all these dire predictions aren't realized, is KOMO prepared to issue an apology to the public for misleading the people? All I've heard so far is may, could, possibly, and every other qualifier KOMO can possibly use because they don't know anymore than we do.
http://www.gopusa.com/commentary/2013/03/02/chavez-holding-the-presidents-men-accountable/?subscriber=1
With the congress and senate we have we need some control's on them. This at least will make them pull back with some of their wasteful spending plans for a little while. It is sad that the people that will be most impacted are the elderly, school kids, and the disabled. Along with those will be police, fire, roads and a lot of other things that have been funded with back door politics. I only hope that they will lay off the pork they keep stuffing in the barrel on every bill that they put before congress as well. What ever happened to "Government by the People and For the People"???
This is what happens when Washington is loaded with bad lawyers who have been there far too long and an "individual" in the White House who hasn't a clue of what he is doing! Unless, of course, this was his plan from the start....bring down the "Great Satan"!
2.4%. No big deal to me.
Any well run household/ business/non-profi, etc. should be able to survive that with little drama.
But you must be a WELL RUN ORGANIZATION !!!!!!!!!!!
@hardtowatchitfade The *government* can survive, sure.  But what about the thousands of people in Bremerton who are getting 20% pay cuts due to the Sequester?
@CommutingGuy @hardtowatchitfade I'm still fuzzy on how a 2.5% cut equals a 20% pay cut.
@TheBronze @CommutingGuy @hardtowatchitfade Because my husband will be losing 1 full day each pay period. For us, 2 days per month = about $500. In July, when the mandatory furlough days increase to 2 per pay period = 4 days each month = about $1000. It hurts. Being a political football is not only unnerving, but leaves us hanging in uncertain times. That's how it equals such a huge cut for a family of 4.
Why don't our illustrious leaders kick in some of their pay and benefits???? Â After all,,, Â we're all in this together,,, Â yeah right,,, Â the slop at the top doesn't give a hoot about others. Time to pay the pauper,,, Â disaster ahead,,, no wonder they are trying to disarm the masses.Â
@Cougartwin:  Re: "Why don't our illustrious leaders kick in some of their pay and benefits????"  The reason is quite simple; by law any changes in compensation to our elected officials cannot take effect immediately.  The changes cannot take effect until that position/person has been reelected.  So if Boehner or Reid were to take a true cut in pay it would not take effect until they were reelected.  The only way they could do it immediately would be to voluntarily donate a part of their wages back to the Treasury.
when this country implodes and sinks into a 2nd great depression we'll all be screwed anyway. I've been saying the US has been headed for a 2nd great depression, similar to the one in the 20s and 30's, though for different reasons for a long time now.
@BlueJedi, And I've been saying for years that there will be another revolution. People who ignore history are bound to repeat it, and our government and too many citizens have not learned from the past.
@SargeMcC whatever
The House passed a bill and sent it to the Senate allowing the President to cut the 85 billion from where ever he felt. The Senate did nothing with the bill and the President will blame every financial or hardship problem on the House and Republicans. He can't have it his way so he will do nothing to help.
The easiest way to fix the budget would be to cut the salary of every government official to $100,000 a year, make them pay for their owns vehicle, and pay for their own insurance, no more of this you serve one term/year/whatever and you get that money and those bennefits for life, no more fancy $100 a person dinners, or vacations on the taxpayers dime.  Â
@MomOf2 Yeah, none of that is real. Â First off, most government officials make far less than $100,000 (to make over $100k in Congress you have to have served for decades, for example). Â Second, they don't get that money/benefits for life. Â They *do* have a pretty nice retirement pension plan, but that's exactly what it sounds like - they can't claim it until they reach retiring age. And it isn't the same as their salary, the most they can possibly get from that is 80% of their salary, and that would only apply to people who were elected to Congress at a very young age and stayed there until they retired. Â The average ex-Congressman earning pension right now earns $41,000 to $55,000.
@CommutingGuy @MomOf2 Well, lets see...
 A quick search reveals that the starting pay o a senator is $174K. So much for your first point.Â
Benefits are fully vested after 5 years.
@CommutingGuy @MomOf2  are you very sure about the "far less than $100,000? Many GS employees earn in this range.
@CommutingGuy @MomOf2 http://usgovinfo.about.com/od/uscongress/a/congresspay.htm
Sorry. but that STUPID repeal of the consumer interest deduction, screwed the American workers. Â And the republicans, as part of asking US to suffer, cut taxes on people like Don Rumsfeld, and the Koch Brothers. Â Once again...Â
@DTÂ Yeah it has nothing to do with the fact that 41% of our money is going to Social Security and Medicare and another other welfare programs take up another 15%. So basically those who are not contributing to taxes are taking 56% of them! But that has nothing to do with it. Your ONLY solution is to take more from those who are producing something!