Sequestration’s Cuts Threaten Millions of Jobs and Economic Growth
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The impending fiscal cliff is a nasty concoction that one part tax hikes and one part mandated budget cuts. Because of how it was haphazardly put together by Congress, it threatens to push the economy into a recession according to the Congressional Budget Office and Federal Reserve chairman Ben Bernanke.
A report from George Mason University economist Stephen Fuller gives us an additional warning of the costs to jobs and the economy from sequestration’s indiscriminate cuts.
In October 2011, Fuller estimated that more than 1 million jobs would be lost in one year because of sequestration defense cuts. In a follow-up study produced for the Aviation Industries Association, he includes non-defense-related industries and estimates that sequestration will:
- Cost the 2.14 million jobs;
- Reduce personal earnings by $109.4 billion; and
- Lower U.S. GDP by $215 billion.
On a state level, the report finds that California, Virginia, and Texas will be the top three states to see the most job losses. Virginia in particular would get hit by both defense cuts (many military bases are located there) and non-defense cuts (many government contractors are based in Northern Virginia, near Washington, DC).
At the Heritage Foundation, Fuller told a group of bloggers and reporters that the “impact is already evident.” Federal agencies are not filling open positions, and defense companies like Lockheed Martin are sending out conditional layoff notices, raising the level of unease with the economy.
However at the Heritage briefing, Fuller said the damage to the economy could be minimized if Congress takes action soon and crafts a plan for smart, strategic cuts. Companies have been deferring purchases and building up their cash holdings while consumers have been reducing their debt loads. The pent-up demand from both groups could explode if their fears were eased. According to Fuller, a sensible sequestration solution would bring an “enormous sigh of relief” and help the economy “turn on its heels quickly.”