4 possible silver linings in the sequester

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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 between 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.

  • Jake Miller

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