Sequester Likely to Be ‘Slow-Motion Train Wreck’

Washington (MarketWatch MCT) -


Barring a last-minute deal, the sequester begins Friday.

But there’s little need to panic. The $85 billion in across-the-board spending cuts slated for 2013 won’t all take effect on Friday if Congress can’t reach a deal to replace them, which looks increasingly to be the case. Instead, the cuts – split between defense and domestic programs – go into place gradually.

“On March 1, no lights will be turned off, no doors will be closed,” said analyst Loren Adler of the Bipartisan Policy Center, a Washington think tank. “The sequester will feel like a slow-motion train wreck. Different people and programs will be hit at different times,” he said an email.

To be sure, Wall Street analysts and others warn about the effects of the sequester in the long term. The Bipartisan Policy Center estimates that it would reduce 2013 gross domestic product by half a percentage point and cost the U.S. economy about 1 million jobs in the next two years. Federal Reserve Chairman Ben Bernanke also used congressional testimony this week to urge lawmakers to defuse the sequester fight.

But while the White House is warning about sequester effects ranging from teacher layoffs to disrupted air-traffic control operations, neither will immediately take place come Friday. Furloughs will be at least one month away, as Transportation Secretary Ray LaHood made clear last week. And as Richard Kogan of the Center on Budget and Policy Priorities noted in a paper this week, Congress and President Obama can agree to turn off cuts for 2013 “after they take effect.”

Whether Democrats and Republicans can wring a tax-and-spending deal out of that next deadline, or just keep kicking the fiscal can down the road, is a huge question mark. Without a new budget, a partial government shutdown would ensue.

Meanwhile, beginning Friday, some furlough notices may start going out, but actual furloughs wouldn’t start until April because federal employees typically require a 30-day notice, Adler said. Agencies, Kogan said, will find themselves with reduced annual dollar amounts as of March 1. But those cuts won’t all come in one fell swoop on Friday.

Social Security, Medicaid, veterans benefits and other programs are exempt from the sequester.

There have been some tangible effects of the pending sequester, including the release by U.S. Immigration and Customs Enforcement of an unspecified number of detainees who were due to be deported. The Pentagon put in place a civilian hiring freeze in January.

But it will take more time before more Americans begin to notice the effects of other sequester cuts, if they’re allowed to stick.