Taking a balanced approach to reducing the Federal budget deficit

Published November 7, 2012

The big news on Capitol Hill of late is the emerging bipartisan support for replacing the looming across-the-board “sequestration” spending cuts to a range of Pentagon and non-military federal programs (including Head Start, education, and research & development) with a more balanced approach to deficit reduction. In a letter to the leadership of the U.S. Senate, six Democrats and six Republicans—a group that included Senators John McCain and Lindsey Graham—made the case publicly for the first time that these sequestration cuts to both defense and non-defense programs would damage the nation’s nascent economic recovery.

This bipartisan group of Senators is right on target—both North Carolina and the nation as a whole need a balanced approach to deficit reduction. Specifically, Congress should replace these across-the-board spending cuts with targeted spending reductions in relevant programs and—perhaps most importantly—the inclusion of new revenues. This kind of fiscally responsible approach recognizes the specific needs of our communities and our collective responsibility to rebuild our economy for the long-term.

Under the current proposal, sequestration undermines these goals. Unless replaced, the country and North Carolina are set to experience $1.2 trillion in across-the-board spending cuts because Congressional leaders failed to identify revenue options alongside reductions to spending in their recent efforts to reduce the federal budget deficit. The first $120 billion of these automatic cuts will take effect in January 2013.

This is a big problem, since these automatic cuts are expected to shrink the state’s economy by almost $3 billion over the next decade, rippling through our communities and damaging the state budget, which relies heavily on federal support.

The loss of these federal dollars will further reduce teachers in the classroom, available slots for children in early childhood programs and funding for K-12 classrooms and student education. Additionally, the loss will significantly reduce the number of workers who receive job training and cripple the research and development investments and defense contracts that represent the prospect for jobs in our communities. The result will be underprepared workers and a persistently high jobs deficit in the state.

Although policy makers have mostly focused on the negative consequences of the defense portion of these automatic cuts for North Carolina’s economy, this is only part of the story. The cuts to non-defense programs will likely have an equally damaging impact, since military and non-military families alike benefit from the education of our children, training of our workforce and creation of new opportunities in high-tech industries—all of which is made possible through federal investment. Specifically, these non-defense cuts will result in the following job losses in North Carolina, job losses that will undoubtedly hold back the state’s economic recovery:

447 Head Start jobs across the state will be lost, leaving 2,146 fewer children served at a time; when the legislature has already cut pre-K programs by 40%;
4,000 parents will lose child-care subsidies, putting their jobs at risk;
6,000 teachers will lose their jobs and 51,000 fewer students will be served.
11,000 fewer workers will be trained for future job opportunities

This is the bad news. The good news is that there are still opportunities for policymakers to put forward a more balanced proposal. If policymakers can put together a deficit-reduction proposal that includes new revenues, these cuts can still be avoided.

One first step would be eliminating just one year’s worth of the Bush-era tax cuts for the richest 1.4 percent of North Carolinians would provide enough new revenue to completely cover the cost of eliminating half of the total first year of automatic cuts required. Even better, eliminating these tax cuts for the next ten years would save $1 trillion over the next decade.

Automatic across-the-board spending cuts are not a fiscally responsible way to budget to meet North Carolina and the country’s needs. Congress should support these bipartisan leaders in the Senate and agree to a balanced approach to deficit reduction that is both fiscally responsible and minimizes the economic damage to North Carolina and the United States as a whole.

Allan Freyer is a Public Policy Analyst at the N.C. Budget & Tax Center.