Revenue & Spending
Austerity Politics: Automatic Spending Cuts, a Government Shutdown, Job Loss, and Record Corporate Profits
by Scott Klinger, 12/17/2013
2013 opened with the economy poised on the edge of "the fiscal cliff," and on that cliff was a sign reading, "Manufactured in Washington D.C." How did we start the year on a ledge, land in a shutdown in October, and scramble to a mini-deal in December? Since it all goes back to the Budget Control Act passed in August of 2011, a short recap may be in order.
The Source of Austerity Policies
In 2011, the House of Representatives refused to raise the debt ceiling without promises of long-term cuts in federal spending. But the House Republicans and Senate Democrats could not decide on the depth or nature of the spending reductions. So a complex piece of legislation named the Budget Control Act created a congressional "Super Committee" to come up with a plan to cut spending before the "temporary" (i.e., 10-year) tax cuts passed by the Bush administration in 2001 and 2003 expired. The thinking was that deep cuts to defense programs championed by Republicans and to social programs cherished by Democrats would be so painful that they would never materialize. Conventional wisdom was wrong. It hadn't counted on the depth of antipathy toward government by the Tea Party wing of the Republican Party.
At the end of 2012, Congress found it had painted itself into a corner: either let the Bush tax cuts expire or accept deep automatic spending cuts – the fearsome cliff approached. Who would blink first? The Center for Effective Government and other allied groups argued that the Bush tax breaks for households earning more than $250,000 annually should be allowed expire, and we produced a report outlining measures that agencies could take to mitigate the short-term impact of the automatic spending cuts, or "sequester." The Boston Globe, Politico, and The Washington Post featured our work and commentary.
But the deal that was cut in the early hours of 2013 left 82 percent of the Bush tax cuts in place, requiring deep cuts to myriad discretionary spending programs.
Spending Cuts on Autopilot
In March, with the House and Senate appropriations bills still miles apart, the across-the-board automatic spending cuts kicked in. We responded by beginning to gather stories of the impact on agencies, communities, and families. We gathered these stories on our Sequestration Central webpage, and they became a valuable resource for citizens and for journalists.
A significant impact of the sequester in 2013 was the downsizing of the government workforce. Hundreds of thousands of government employees experienced furloughs totaling a few days to a few weeks. Some government offices closed for entire days throughout the summer and fall; others reduced their service hours. To avoid laying off public servants, many agencies adopted policies of attrition, which strained the workforce, sometimes leading to delays in service or backlogs. Cuts in federal government programs impacted states, leading to more cuts to jobs at the state and local levels. Since the Great Recession, an estimated 300,000 teachers (state and local employees) have lost their jobs. In 2013 alone, the Bureau of Labor Statistics reports the loss of 94,000 federal government jobs, one of the reasons unemployment remains stubbornly high. The number of federal government employees per 100 Americans has fallen to its lowest level in more than 50 years.
The Center for Effective Government organized a letter calling for an outright repeal of sequestration cuts and obtained support from more than 200 national, state, and local organizations.
By April, both the House and Senate had passed budget outlines for the first time in the last four years, and the White House unveiled its annual budget blueprint (a few months late); the progressive and conservative wings of each House caucus released their budget visions, as well. We published a comparison of the various budget proposals and the philosophy behind each. While the budgets offered very different visions of the federal government, there were some points of agreement: both progressive and conservative budgets targeted excessive agribusiness subsidies for cuts.
Over the summer, we documented the impact of the sequester cuts with our "What's at Stake" series of reports on the impact of cuts on Meals on Wheels nutritional assistance for elderly Americans, transportation and housing spending, and enforcement of worker safety laws.
Meals on Wheels cuts resulted in 4 million fewer meals being served to elders facing hunger. The $10 million saved by these cuts was dwarfed by the potential increased costs faced by Medicaid. Meals on Wheels is one of the most cost-effective government programs, making it possible for thousands of Americans to remain at home, rather than moving into costly nursing homes. Our analysis found that Meals on Wheels cuts could force more than 40,000 elderly Americans into skilled nursing facilities that would cost Medicaid $479 million in 2013 alone.
Our report on transportation infrastructure highlighted the dramatic differences between House and Senate budget proposals. With more than 11 percent of the nation's bridges rated structurally deficient, the Senate allocated $500 million to address this crucial unmet need, while the House budget offered no equivalent funding. This echoes an overall divergence in Senate and House spending priorities for the Housing and Urban Development budget, where the Senate proposed a 10.5 percent budget increase, while the House offered a 14.7 percent budget cut. Long-term cuts in federal funding of public housing (down 12 percent between 2008 and 2012) have contributed to a shortage of rental housing and rents that are rising faster than inflation. The House budget proposal would have eliminated rental subsidies for 125,000 low-income Americans.
Mandatory budget cuts also took their toll on the government's regulatory functions. Our report on the impact of budget cuts at the Occupational Safety and Health Administration (OSHA), the agency charged with enforcing worker safety laws, found that the U.S. had fewer workplace safety inspectors in 2012 than in 1981, when President Reagan came into office, even though the number of U.S. workplaces has doubled over the last three decades. Federal cuts to OSHA's budget have trickled down to state worker safety regulators both in terms of reduced revenue sharing and fewer training programs offered by the federal government, for the benefit of both state regulators and private industry.
The research conducted for our "What's At Stake" series and throughout the process of collecting stories for Sequestration Central was shared in visits to more than 50 congressional offices. This allowed us to present our research and give progressive leaders on Capitol Hill additional tools and confidence to decry sequestration's impacts.
Over the summer, the Center for Effective Government examined ways to save money at the federal level that could be used to replace automatic sequester cuts, such as canceling and replacing wasteful defense programs like the F-35 Joint Strike Fighter, getting rid of excessive agribusiness subsidies, and changes in Medicare that would not affect the benefits people receive.
With the end of summer came the end of the government's fiscal year and its authority to spend additional funds. Eighty-one members of the House publicly committed to blocking a vote on funding the government unless the Affordable Care Act was defunded. This minority of one party in the House shut down the federal government in a futile effort to repeal one law.
Without funds to continue work, 800,000 government workers across the country were idled the morning of Oct. 1. Americans got a quick lesson that the federal government was not just about Washington, D.C., but about federal public servants in cities and towns across America. In the hours before the shutdown, the Center for Effective Government gained access to a list of federal government workers by county. We used this data to create an interactive map showing where federal employees work. We also found that the districts represented by the 81 House members that forced the government to shut down had 6,300 federal workers, on average, nearly a third more than the typical congressional district.
Throughout the shutdown, we gathered information on the far-reaching impacts on families, communities, and the economy. We provided perspective on the shutdown by reporting on the impacts of increased uncertainty on the economy, emphasizing the widespread impacts on families, drawing attention to the potential impact on veterans, launching a landing page for the shutdown, echoing reports of economic damage, and collecting best resources for readers.
As the shutdown entered its second week, a second peril drew into the nation's focus: a default on U.S. government debt as the debt ceiling was reached. We examined the lasting potential impact of a default on the nation's debt, including higher interest rates on everything from student loans to home mortgages.
The president refused to negotiate on the Affordable Care Act, and after two weeks, as the harm to communities, families, and public workers was being documented, on the eve of default, the House Speaker allowed a vote on a temporary government funding measure and an extension of the debt ceiling. The bill passed the House with bipartisan support, 285-144.
The Center for Effective Government recognized that the shutdown of the federal government created a "teachable moment" for many Americans about what government does and its importance. And we decided it was time to tackle the austerity frame head on.
We challenged austerity-loving CEOs who are calling for cuts to Social Security benefits and increases to the Social Security retirement age by comparing their personal retirement assets with those of typical American retirees. Platinum Pensions, a report we co-published with the Institute for Policy Studies, found that CEOs who are members of the Business Roundtable, a powerful lobbying group that represents the interests of its 200+ CEO members, have, on average, $14.5 million in their company retirement accounts, enough to generate an $86,043 monthly retirement check once they turn 65. This golden nest egg is 1,200 times what the average retired American can expect.
We launched our latest website, OurGovernmentMatters.org, on Dec. 3 with the release of a report that explored whether cutting taxes on corporate profits creates jobs. We found that the 30 large firms with the highest corporate tax rates between 2008 and 2010 created nearly 200,000 jobs over the last five years, while the 30 corporations with the lowest tax rates shed more than 50,000 jobs.
A companion piece to this report was released on Dec. 11. It examines the unmet needs for infrastructure investments that have resulted from these austerity budgets and discusses the positive effects on the economy and job creation when we invest in education, infrastructure, and social safety net programs.
In upcoming months, the Our Government Matters campaign will feature reports looking at waste involved in excessive contracting and the money that could be saved by in-sourcing public services, as well as potential new sources of government revenue from user fees.
The campaign's website, OurGovernmentMatters.org, offers grassroots advocates, public employees, elected officials, and others new resources that we hope will help change the conversation about government to acknowledge the role of collective action in fighting hunger, protecting vulnerable populations including our seniors, and more. We dished up our first helping of these new resources with the pre-Thanksgiving release of "Table Talk: Four Ways to Respond to Friends and Relatives Raging Against Government Over the Mashed Potatoes."
What Lies Ahead
We began the year by outlining steps that government agencies could use to mitigate the impact of the sequester. We are deeply pessimistic about the ability of agencies to continue to rely on what were largely one-time fixes to complete their missions in a climate of austerity, however. Attrition, furloughs, delays in equipment repair and maintenance, underinvestment in research and technology for the future, and a tolerance for backlogs are strategies for dealing with short-run crises, but these are not elements of long-term budget solutions.
The recently announced budget deal – which, as of publication, still requires Senate approval – would forestall many of the additional sequester cuts that would have kicked in next month, but the deal leaves untouched cuts made since 2011.
Many cuts, especially those in training new employees and neglecting research and development in medicine, physics, and ecology, will deliver harsh impacts for years to come. For instance, in response to the cuts in 2013, both the Federal Aviation Administration (FAA) and the FBI curtailed their training academies, which will lead to a shortage of trained air traffic controllers and FBI agents as current workers reach retirement age.
As we end the year, the deficit has fallen to its lowest level since before the Great Recession, thanks in part to the tax increases at the start of the year. Nonetheless, authorities ranging from the Congressional Budget Office (CBO) to the International Monetary Fund (IMF) have drawn attention to the dangers of short-run crisis budgeting and the importance of government investment in public structures for long-term growth and future economic development and competitiveness.
As the human and community costs of austerity become clearer, we believe we have an enormous opportunity to educate Americans on the importance of effective government in protecting families and communities from harm and in investing in the public structures that ensure equitable growth from the middle class out.
Nick Schwellenbach and Jessica Schieder contributed to this article.