Based on the Budget Control Act of —which first introduced the sequester—most of the FAA budget will be subject to the across-the-board sequestration cuts even though the agency is largely funded by user fees. As a consequence of the sequester, on March 1, , the FAA—as well as most other domestic agencies—will have its annual budget cut by 5.
Moreover, that reduction in funding will have to be taken from FAA operations for the remainder of the current fiscal year. That means a reduction of more than 9 percent in monthly spending for the rest of this fiscal year. A spending reduction of that size can only be accomplished by cutting work schedules, which means at least a 9 percent decline in the number of hours worked by air traffic controllers.
The decline in air traffic will by itself offset much of the theoretical budget savings. Even if one chooses to ignore the tax loss from the array of economic activities that most certainly will be impacted by a reduction in both flights and work hours for air traffic controllers, most of the assumed savings from the sequester will be lost through the reduced collection of user fees.
User fees are collected to offset at least a portion of the spending of dozens of government agencies, such as the Patent and Trademark Office, the Securities and Exchange Commission, the Food Safety Inspection Service, the U.
Some agencies—such as the Patent and Trademark Office— generate more revenue than they spend. If agencies keep part of their workforce at home each day, the deficit will not be reduced.
In fact, it will increase. The loss of user fees, however, is not the only negative impact of the sequester. Many of the federal employees who will be furloughed are tasked on a day-to-day basis with collecting revenues, identifying overcharges by government contractors or service providers, and preventing fraudulent or inappropriate claims for government benefits.
For years numerous observers such as the Government Accountability Office have argued that the money spent to operate the IRS is not nearly enough and that as a result large sums owed by tax cheats remain uncollected. Nowhere is the issue of money management under sequestration more problematic than at the U. Department of Defense. Largely because the pay of uniformed service personnel has been exempted from sequestration, the percentage cut to the rest of the department will be larger than in nondefense programs.
For most office at the Department of Defense, the magnitude of that cut will translate into about 22 days of furlough for every employee. The American taxpayer will pay a price for these furloughs in a number of ways. Most of the talented and best-performing people on the Department of Defense workforce, for example, are certain to have second thoughts about a career in government service if their paychecks shrink by more than 15 percent between now and October.
Another effect will be the cost of buying the equipment that our military needs to maintain its capability to fight. Making this situation even more complicated—and fiscally destructive—is the fact that many of the agreements that the Department of Defense has with its vast network of contractors are based on a certain volume of demand. Whether the military is buying truck tires, ammunition rounds, or steel pots, contractors make their bids based on being able to distribute their fixed costs among a certain number of units.
Sequestration will force the Pentagon to fall below that level of purchasing for many of items in the defense supply chain. As a result, many contractors will be entitled to renegotiate the price of their goods. That will be an expensive proposition for the government in terms of the cost of the renegotiation and the fact that the Pentagon will end up paying more per unit of items required for the defense inventory.
This is a scenario that could very well be a bonanza for some contractors—but it will certainly not produce good results for the taxpayer.
CBO provides estimates of the statutory caps on discretionary funding and an assessment of whether sequestration might be necessary under current budgetary rules, but the Administration's Office of Management and Budget makes the ultimate determination of whether a sequestration is necessary and, if so, how big it should be. As required by law, CBO reports on whether appropriations enacted for the current fiscal year have exceeded the statutory caps on discretionary funding.
In a report required by law, CBO provides estimates of the caps on discretionary funding for fiscal years and CBO concludes that the discretionary appropriations provided to date for do not exceed the caps for this year.
As required, CBO reports on whether appropriations enacted for the current fiscal year have exceeded the statutory caps on discretionary funding. Importantly, the entire additional cut will take place on the defense side of the budget. What Happens to Discretionary Spend i ng After ? Current law calls for the sequester caps to continue through After , discretionary spending is not subject to any cap.
The cost of repealing the sequester depends on how much of the sequester cuts policymakers wish to reverse and for how many years. Any reduction in the sequester should at minimum fully replace these temporary savings with more targeted and permanent deficit reduction.
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