It's Official: Deficit Cuts Hurt an Economy — and Nobody Wants to Touch This

Both Republicans and Democrats cast themselves as deficit cutters during the presidential election, but the new reality from the anual CO report is further evidence that no one in Washington — not Obama or Boehner — will take credit for the sequester anymore.

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The U.S. economy will grow slower this year in part because of deficit cutting and the sequester, the Congressional Budget Office said in its annual Budget and Economic Outlook report released on Tuesday. And while both Republicans and Democrats cast themselves as deficit cutters during the presidential election, this official new reality is further evidence that no one in Washington wants credit for the sequester anymore.

The CBO projects the economy won't fully recover until 2017, when unemployment will fall to 5.5 percent, as Talking Points Memo's Brian Beutler points out. This is because of the expiration of the payroll tax holiday and the sequester, the CBO says:

"That slow growth [of 1.4 percent] reflects a combination of ongoing improvement in underlying economic factors and fiscal tightening that has already begun or is scheduled to occur-including the expiration of a 2 percentage-point cut in the Social Security payroll tax, an increase in tax rates on income above certain thresholds, and scheduled automatic reductions in federal spending. That subdued economic growth will limit businesses’ need to hire additional workers, thereby causing the unemployment rate to stay near 8 percent this year, CBO projects."

The Washington Post's Ezra Klein posted this graph of federal spending from Goldman Sachs. It shows a dramatic dip in federal spending. Goldman economist Alec Phillips projects federal spending to drop 11 percent over the next two years. Phillips says that yes, federal spending has dropped significantly before, but that was usually at the end of a war (Vietnam, the Cold War). This new drop comes while the U.S. has had unemployment rate over 7.5 percent for five years running — the first time that's happened in 70 years. Why is that difference significant? Klein explains that when war spending was cut, it was less harmful, because "that spending was not directly raising living standards in the United States, and so its absence didn't have the kinds of consequences of, say, the sequester." The Bipartisan Policy Center says the sequester could kill 1 million jobs over the next two years.

It's clear that nobody really wants to be linked to the sequester anymore. Republicans have been arguing that it was President Obama's idea all along. House Speaker called it "the president's sequester" five times in a speech Monday, The Washington Post's Aaron Blake notes. Senate Republicans issued a press release titled "Reminder: Sequester 'Originated In The White House.'" In a statement to reporters Tuesday, Obama asked Congress to delay the sequester if it can't come up with a deal before the automatic spending cuts hit: "If Congress can't act immediately on a bigger package, if they can't get a bigger package done by the time the sequester is scheduled to go into effect, then I believe that they should at least pass a smaller package of spending cuts and tax reforms that would delay the economically damaging effects of the sequester for a few more months until Congress finds a way to replace these cuts with a smarter solution," Obama said. Boehner again responded on Tuesday by saying it's Obama's fault the sequester exists in the first place, saying in a statement:

"President Obama first proposed the sequester and insisted it become law. Republicans have twice voted to replace these arbitrary cuts with common-sense cuts and reforms that protect our national defense."

Obama has promised to veto legislation that replaces the sequester with a package that only includes spending cuts, with no tax increases. But he seems committed to cutting spending, saying he'll also veto legislation that would eliminate the sequester and replace it with nothing. Three Republican senators are proposing to replace the first year of the sequester with spending cuts from shrinking the federal workforce through attrition, The Hill reports. While the loss of bureaucrats' jobs might be more popular than the loss of jobs in the private sector, it's still lost jobs.

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