Gov't downsizes amid GOP demands for more cuts

2.22.13 — WASHINGTON (AP) — Repub­li­cans and other fis­cal con­ser­v­a­tives keep insist­ing on more fed­eral aus­ter­ity and a smaller gov­ern­ment. With­out much fan­fare or acknowl­edge­ment, they’ve already got­ten much of both.

Spend­ing by fed­eral, state and local gov­ern­ments on pay­rolls, equip­ment, build­ings, teach­ers, emer­gency work­ers, defense pro­grams and other core gov­ern­men­tal func­tions has been shrink­ing steadily since the deep 2007–2009 reces­sion and as the ane­mic recov­ery continues.

This recent shrink­age has largely been obscured by an increase in spend­ing on ben­e­fit pay­ments to indi­vid­u­als under “enti­tle­ment” pro­grams, includ­ing Social Secu­rity, Medicare, Med­ic­aid and vet­er­ans ben­e­fits. Retir­ing baby boomers are dri­ving much of this increase.

Another round of huge cuts — known in Wash­ing­ton par­lance as the “sequester” — will hit begin­ning March 1, poten­tially mean­ing lay­offs for hun­dreds of thou­sands of fed­eral work­ers unless Con­gress and Pres­i­dent Barack Obama can strike a deficit-reduction deal to avert them.

With the dead­line only a week off, Obama and Repub­li­cans who con­trol the House are far apart over how to resolve the dead­lock. While last-minute bud­get deals are fre­quent in Wash­ing­ton, nei­ther side is opti­mistic of reach­ing one this time.

Even as the pri­vate sec­tor has been slowly adding jobs, gov­ern­ments have been shed­ding them, hold­ing down over­all employ­ment gains and keep­ing the job­less rate close to 8 per­cent, com­pared with nor­mal non-recessionary lev­els of 5 to 6 per­cent that have pre­vailed since the 1950s.

“It’s a mas­sive drag on the econ­omy. We lost three-quarter mil­lion public-sector jobs in the recov­ery,” said econ­o­mist Heidi Shier­holz of the labor-friendly Eco­nomic Pol­icy Insti­tute. “We’re still los­ing gov­ern­ment jobs, although the pace has slowed. But we haven’t turned around yet.”

A larger-than-usual decline in fed­eral spend­ing, notably on defense pro­grams, helped push the econ­omy into neg­a­tive ter­ri­tory in the final three months of 2012. Eco­nomic growth, mean­while, has been inch­ing along at a weak 1–2 per­cent — not enough to sig­nif­i­cantly fur­ther drive down the national unem­ploy­ment rate, which now stands at 7.9 percent.

Although fed­eral spend­ing is pro­jected to decline from 22.8 per­cent of the gross domes­tic prod­uct recorded last year to 21.5 per­cent by 2017, it still will exceed the 40-year-average of 21.0 per­cent, accord­ing to the non­par­ti­san Con­gres­sional Bud­get Office. Spend­ing peaked at 25.2 per­cent of GDP in 2009.

The bud­get office also said the econ­omy is roughly 5.5 per­cent smaller than it would have been had there been no recession.

The Defense Depart­ment already has made deep spend­ing cuts, and out­go­ing Defense Sec­re­tary Leon Panetta said 800,000 civil­ian Pen­ta­gon employ­ees were noti­fied this week they likely are to be placed on peri­ods of unpaid leave due to law­mak­ers’ fail­ure to act.

The recent down­siz­ing in gov­ern­ment is most pro­nounced at the state and local lev­els. Most states have con­sti­tu­tional or statu­tory require­ments for bal­anced budgets.

That means nearly all states are pro­hib­ited from run­ning bud­get deficits, while the fed­eral gov­ern­ment is not.

Not only can the fed­eral gov­ern­ment run deficits, but it can print money — through actions by the Fed­eral Reserve — some­thing states are pro­hib­ited from doing.

Those call­ing for a smaller gov­ern­ment mostly don’t take notice of the wave of recent cut­backs. Their clar­ion call remains Ronald Reagan’s mantra: Gov­ern­ment doesn’t solve prob­lems, it is the problem.

“This spend­ing issue is the biggest issue that threat­ens our future,” House Speaker John Boehner, R-Ohio, says. “When are we going to get seri­ous about our long-term spend­ing problem?”

And Florida Sen. Marco Rubio of Florida, deliv­er­ing the GOP response to Obama’s State of the Union address, said “a major cause of our recent down­turn was a hous­ing cri­sis cre­ated by reck­less gov­ern­ment policies.”

Soar­ing recent gov­ern­ment deficits are par­tially a side effect of the worst reces­sion since the 1930s, which took a huge bite out of tax rev­enues at the same time spend­ing increased on recession-fighting pro­grams like unem­ploy­ment com­pen­sa­tion and stim­u­lus mea­sures under both Pres­i­dents George W. Bush and Obama.

“The prob­lem going for­ward is one of demo­graph­ics and ris­ing health care. It is the baby boom gen­er­a­tion retir­ing,” said Alice Rivlin, a White House bud­get direc­tor under Pres­i­dent Bill Clin­ton. “It’s the fact that every­body is liv­ing longer.”

Repub­li­cans argue that enti­tle­ment pro­grams should be on the cut­ting board as well as other gov­ern­ment pro­grams. Democ­rats gen­er­ally have been more pro­tec­tive of them, although the pres­i­dent and many con­gres­sional Democ­rats acknowl­edge some par­ing of these pop­u­lar pro­grams is in order.

The fed­eral bud­get deficit for the fis­cal year end­ing Sept. 30 is esti­mated to be $845 bil­lion — the first time it’s dropped below $1 tril­lion in five years. But it’s on track to rise again as more and more baby boomers retire and qual­ify for fed­eral ben­e­fits and as inter­est pay­ments on the national debt keep going up.

The national debt first inched past $1 tril­lion early in the Rea­gan admin­is­tra­tion and has grown in leaps and bounds ever since through both Demo­c­ra­tic and Repub­li­can pres­i­den­cies. It now stands at $16.6 tril­lion and is on a path toward soon becom­ing unsus­tain­able, both par­ties agree.

Unchecked, enti­tle­ment pay­ments will add roughly $700 bil­lion to the debt over the next four years.

For now, though, “the econ­omy is con­tin­u­ing to heal from the worst eco­nomic down­turn since the Great Depres­sion,” top White House eco­nomic adviser Alan Krueger says.

Under the sequester law, roughly $85 bil­lion in fed­eral spend­ing would be slashed in the remain­ing seven months of this fis­cal year and a total of $1.2 tril­lion in cuts over 10 years.

While enti­tle­ment pro­grams and uni­formed mil­i­tary per­son­nel would be exempt, the rest of the gov­ern­ment would be hit with indis­crim­i­nate across-the-board cuts.

Obama wants gov­ern­ment deficits trimmed through a mix of selec­tive spend­ing cuts and new tax rev­enues, mostly by end­ing deduc­tions and tax cred­its fre­quently claimed by the wealth­i­est Americans.

Repub­li­cans oppose any new taxes, even if for clos­ing loop­holes rather than increas­ing rates.

The loom­ing spend­ing cuts were first sched­uled to take effect on Jan. 1. But they were post­poned to March 1 as part of year-end “fis­cal cliff” nego­ti­a­tions that also raised tax rates on afflu­ent Amer­i­cans. Repub­li­cans insist that’s enough tax increas­ing for now.

Posted by Randa Wagner on Feb 22 2013. You can follow any responses to this entry through the RSS Feed. Both comments and pings are currently closed.