How The Sequester Affects You

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sequester-resultsIf you haven’t heard about the Sequester, then I am here to explain the harmful automatic budget cuts that have threatened jobs, and have cut vital services. The Sequester has been in effect since March 2013.

Many programs in the United States are popular, such as Medicare and Medicaid. Medicare offers inexpensive health care to older people and is more efficient and cheaper than private insurance but it is also very expensive for the Country. The other popular healthcare program that is offered to low-income citizens is called Medicaid. Medicare and Medicaid fulfill 23% of the whole Federal Budget. Social Security fulfills another 22% of the budget and these programs are what are known as “Mandatory Spending Programs” and cover 45% of the whole budget. The interest paid on our national debt is 6% and there is also an additional 13% of the budget that is mandatory (i.e.  salaries for senators, judges etc.). In total, 64% of our Federal Budget is Mandatory Spending, the other 36% is discretionary spending which Congress allocates yearly to programs such as NASA, Science Research, Defense and more.

There is a serious long term problem with our Mandatory Spending programs because Social Security will go up and the cost of Medicare and Medicaid will double over the next 30 years as the population ages and healthcare costs continue to rise. To fix this, we need to decrease benefits or increase revenue or both, otherwise the defect will go on a spiral and the economy will crash and cause the United States to default on it’s debt (kinda what’s happening to Greece). These long term problems require long term solutions.

92444268-credit-default-swapI don’t know if you remember that in 2011 the United States nearly defaulted on its Debt, not because we couldn’t afford the debt but because Congress was refusing to raise the debt ceiling, which was funny because the reason why we were reaching the debt ceiling was because of the budget congress had passed. In the United States congress sets the tax rates and the budget, and if taxes and budget leads to a deficit that is Congress’s fault.

Eventually Congress passed the Budget Control Act in 2011 which raised the debt ceiling and also created a “Super Committee” which would address the country’s long term fiscal problems and keep our debt from spiraling out of control. In order for the Super Committee to do its job, Congress enacted what was originally proposed by president Obama, called Sequestration.  If they didn’t come to an agreement there would be automatic budget cuts of $1.2 Trillion over 10 years; half of the cuts are from Defense and the other half are from the Discretionary Spending, but very little cuts to the Mandatory Spending (that are the center of the long term fiscal problem).

The reason why the Sequester is a horrible idea is because the cuts are non-selective and every program (except the mandatory programs) have to be cut by the exact percentages. Instead of shutting down programs that are ineffective, all programs will suffer and this is estimated to cost between 500,000 – 2,000,000 jobs and Mark Zandi, chief economist for Moody’s Analytics, said fiscal policy should shave 1.5 percentage points from gross domestic product growth in 2013. He also added that the fiscal contraction this year will be the biggest pinch since the government drew down forces at the end of World War II.

The most important thing about Sequestration is that it creates more problems, doesn’t solve the current problems and it doesn’t do anything to address the long term problems. Politicians continue to discuss who is to blame and distract us from the larger issue. Sequestration is a disaster and it does nothing to make our economy healthier. This is an embarrassment to our country.

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