One week into the sequester and the sky hasn’t fallen – at least not yet. However, there are still lots of economists and politicians predicting problems ahead.
The Congressional Budget Office predicts that the sequester cuts will cause a 0.6 percentage point reduction in U.S. economic growth this year, and FED Chairman Ben Bernanke puts the impact at 0.5 percentage points and 350,000 jobs.
Cuts to farm program payments will probably be small, but USDA continues to say that employees will have to be furloughed; most notably some of the food safety inspectors. Unless things change, between now and October 1 defense spending will be cut by $43 billion and domestic programs will be cut by $26 billion.
In addition, payments to Medicare providers will be lowered and unemployment benefits will be reduced.
Members of the House Ag Committee questioned USDA Secretary Vilsack about the implementation of the sequester spending cuts at a Congressional hearing this week, especially the plan to furlough food safety inspectors.
Vilsack pointed out that every budget account must be cut and that he does not have the flexibility to shift cuts to different accounts. Further, 87 percent of the budget for the Food Safety Inspection Service is for salaries so furloughing people is the only way to make the required cuts according to Vilsack.
He also claimed that USDA had already cut the discretionary budget by $700 million over the last 4 years and reduced the USDA workforce by 8 percent.
The next debate will be about avoiding a government shut-down when the current continuing resolution (CR) expires March 27.
Since Congress couldn’t pass appropriations bills last year, they extended government funding with a CR. Both parties want to avoid a shut-down, but the old stumbling blocks remain with parties deadlocked on spending cuts vs. more tax hikes. In the end, Congress will probably pass yet another CR to get the country through the rest of fiscal 2013.
As expected, policymakers will have less money available for a new farm bill now. The Congressional Budget Office has revised the “savings” that would have been achieved under the farm bills proposed in the House and Senate last year.
Estimates of savings for both bills were revised down by about $10 billion over the ten year horizon. Savings from cuts in the SNAP program were much smaller than previously thought. Many farm groups are worried that policymakers will revise crop insurance programs as a way to achieve savings when work on a new farm bill resumes.