After last minute discussions failed to reach a consensus, the American Congress was unable to prevent a wave of unpalatable cuts coming into effect. President Obama has since signed off on the sequester, which will see over $85bn wiped from the federal budget over the year.
When the cuts were conceived in 2011, they were meant to be as undesirable as possible for both parties, in order to force a consensus on a solution to tackle the US's $16.6trn debt. Obama maintains that increasing taxes is the better way of balancing the books, while Republicans insist that spending cuts are the answer. “The president got his tax hikes on January the first, the Issue here is spending. Spending is out of control,” said Republican John Boehner, speaker of the House of Representatives. “I don't think anyone quite understands how it gets resolved.”
The cuts will amount to 4.8 percent of the GDP between 2010 and 2014. About half of the $85bn cut this year will come from the defence budget. It has been estimated that the sequester, if fully realised, will slow growth by 0.5 percent and may cost up to 750,000 jobs. The cuts will total in excess of $1.2trn over the next decade. Incoming defence secretary Chuck Hagel has insisted the cuts “will cause pain, particularly among our civilian workforce and their families.
“Let me make it clear that this uncertainty puts at risk our ability to fulfill all of our missions. Later this month, we intend to issue preliminary notifications to thousands of civilian employees who put on unpaid leave.”
The impasse has come to a head as the president insists on closing a number of corporate tax loopholes. Obama has already successfully argued for a series of tax hikes that came into effect at the beginning of the year. At the end of March the temporary federal budget is due to expire, therefore a bill that will ensure the funding of the government through the end of the year must be passed. Boehner has assured that Republicans are ready to approve bill, though if it fails to pass the federal government might be forced into shut down.
“They've [the Republicans] allowed these cuts to happen because they refuse to budge on closing a single wasteful loophole to help reduce the deficit,” said Obama on Friday. “We shouldn't be making a series of dumb, arbitrary cuts to things that businesses depend on and workers depend on.”