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."
Walorski said she supports HR 593, the Down Payment to Protect National Security Act of 2013, which would delay the onset of the sequester by one year by reducing the federal work force through attrition and imposing a freeze on congressional pay. She is one of 24 co-sponsors of the bill.
"It basically uses the same kind of common-sense principles used in business, that basically anyone in Indiana would use if they were trying to cut," Walorski said. "So it's predictable, it's plannable, it's budgetable and everybody knows what the playing field is."
Coats, for his part, prefers a long-term fix to the problem, one that doesn't simply kick the can down the road another few months.
"I am on the record for, and continue to support, pulling together a long-term, credible, targeted plan dealing with excess spending," Coats said. "I'm not going to support short-term, small fix measures that simply postpone the inevitable at a time when we have to come to grips with the fact that we cannot keep spending and borrowing without running into big trouble.
"We've tried this push-it-down-the-road, short-term fix stuff for nearly three years, and it's not helped."
Donnelly agrees, saying in a statement:
"The American people deserve a Congress that is willing to work together to get things done. We are faced with the looming sequestration because lawmakers were unable to work with one another to find common ground on a broad initiative to get our fiscal house in order.
"It is time for members of both parties to set politics aside and find ways to significantly reduce spending, close unnecessary tax loopholes, and better balance the budget. Those are my priorities in any package moving forward."
The blame game
But coming to an agreement on a so-called "grand bargain" is easier said than done. Twice in the past six months the Republican-controlled House has passed legislation to avert the sequester, only to have it be ignored in the Democrat-controlled Senate.
"The House has provided two different rounds of alternative cuts that the president and Senate have not moved on," Walorski said.
Democrats, for their part, say the plans that have been put forth by Republicans have been unbalanced. They say they would spare defense at the cost of social programs such as Medicare and Social Security.
At the same time, Republicans refuse to include revenue in any long-term plan to reduce the deficit, as demanded by the president, saying the administration got the tax increases it asked for in January, and now it's time to cut spending.
In the meantime, both sides say they are waiting on the other to act -- and blaming each other for the current situation.
"My opinion is (the sequester) is a faulty idea from the president that was part of the debt negotiations back in 2011," Walorski said, echoing what House Speaker John Boehner, R-Ohio, said in an op-ed published online Tuesday.
Said the White House, in response: "Tonight ... the Leader of the Republican Party took to the opinion pages of the Wall Street Journal to engage in an amazing act of revisionist history."
Given the current atmosphere, going over the cliff, so to speak, might be the best way to get something done, Coats said, in that the economic consequences might finally convince lawmakers on both sides of the aisle to put aside their differences and return to the bargaining table.
"I think the only leverage that those of us have who believe we need to get the so-called 'grand bargain' is these automatic cuts," Coats said, "and that is going to precipitate negotiations as far as how we get there."
Staff writer Erin Blasko: