Though not set to take effect until Friday, the automatic cuts to defense and domestic spending known as the sequester, negotiated back in 2011 as part of a deal to raise the debt ceiling, already are having an effect on the economy and national security, lawmakers say.
Because of the uncertainty surrounding the cuts, businesses are not investing, and government agencies are putting a hold on new contracts and preparing to scale back programs and services and reduce payroll.
Just this month, the Pentagon and U.S. Customs and Border Protection announced plans to furlough employees if the cuts take effect, and the Pentagon, anticipating the cuts, chose not to deploy a second aircraft carrier to the Persian Gulf.
Some even blame the sequester for the poor performance of the economy in the fourth quarter of last year.
"We hear in the media right now that (the sequester) is starting March 1, and March 1 is the deadline, but sequestration is already under way," U.S. Rep. Jackie Walorski, R-Jimtown, told The Tribune during a one-on-one interview this past week at her district office in downtown Mishawaka.
Included in debt ceiling negotiations as an incentive for lawmakers to reach a "grand bargain" on deficit reduction, the sequester would result in about $85 billion in automatic, across-the-board cuts to defense and domestic spending this year alone -- and about $1.2 trillion over the next 10 years.
Half of the cuts would come out of defense, and half would come out of domestic programs.
Sen. Dan Coats, R-Ind., who did not support the sequester -- "I did not vote for that agreement because I did not like the idea of having cuts across the board," he said -- said Friday he expects the cuts to take effect.
"This is coming home to roost," Coats told The Tribune by phone late last week from his office in Washington, "and the real debate over this is whether and how we put a plan together that would avoid the sequester or at least mitigate it to some extent."
If the sequester does occur, the effect on the economy could be devastating, economists say.
"It definitely would add to unemployment," Jeffrey Bergstrand, a professor of finance in the Mendoza College of Business at the University of Notre Dame, said. "Likely within a year's time, it would raise the unemployment rate by one-half of 1 percent, so we would see a retreat of the unemployment rate back up to 8.5 percent."
Economists also predict gross domestic product growth of minus-1.3 percent if the cuts take effect, Bergstrand said, based on reduced demand for goods and services.
"It would very much put the economy this year at between zero and 1 percent growth. ... It's a slowing down of the recovery. It slows down economic activity elsewhere and it definitely creates higher unemployment," Bergstrand said.
According to Coats, the specter of the sequester alone has consumers, investors and business owners spooked.
"There's a huge cloud of uncertainty hanging over business decisions and investment decisions and consumer buying decisions, because people are saying, 'What's the future going to look like?' " he said.
"Business people in Indiana say they would like to expand and buy new equipment and hire new people," he continued, "but there's just so much uncertainty."
In Indiana, the sequester would result in reduced federal funding for education, medical and scientific research, women's and children's health and public safety, according to information provided by the office of Sen. Joe Donnelly, D-Ind. And it would lead to military cutbacks and cutbacks in defense that also would hurt the state.
"Indiana, just statewide, is a principal player in the defense of this country, and in our district we have 53,000 veterans, plus their families and extended families," Walorski said. "We also in Indiana have the fourth largest National Guard in the country, so you know we are a small 6.5 million population state, but our part in defending this nation is sizable, larger than most states, and we also have a larger number of defense contractors."
Lawmakers pessimistic about budget deal
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