NC Budget and Tax Center

Automatic Federal Budget Cuts Will Hurt North Carolina’s Economy and Fiscal Bottom Line

Just a month after this year’s budget-cutting General Assembling left town, North Carolinians are facing a new round of spending reductions on top of the state budget cuts enacted since 2011.  This time, spending cuts are coming from Washington, DC and promise to shrink funding for non-defense-related public investments in education, research, and healthcare.  Coupled with cuts to the Pentagon budget, sequestration will reduce Federal spending by$1.2 trillion over the next decade.

Although policy makers have mostly focused on the negative consequences of the defense portion of these cuts for North Carolina’s economy (with estimates as high as $1.5 billion in lost defense contracts and 11,000 in lost jobs), it is also clear that the targeted reductions in non-defense programs will have an even greater negative impact on both the state’s economic health and its budgetary bottom line, as WRAL reports:

 

Birthed out of the deal reached between Congressional leaders and President Obama to raise the Federal debt limit last summer—known as the Budget Control Act—these so-called “sequestration” cuts were designed to go partially into effect in 2013 unless a specially created congressional “super-committee” could agree to find another way to reduce the Federal budget deficit by $1.2 trillion.  Perhaps unsurprisingly given unprecedented gridlock in Congress, the super-committee failed to reach an agreement last year, and as a result, these across-the-board automatic sequestration cuts are set to take effect in the coming years, the first $120 billion in just a few months, evenly divided between Pentagon and non-defense spending.

In terms of economic consequences, one recent study suggests that the non-defense cuts will reduce Gross State Product by almost twice the amount lost to Pentagon cuts, for a combined loss of $2.95 billion to the state’s economy.  The study estimates that the jobs impact for both defense and non-defense cuts would be cause over 1 million job losses nationwide.

And the economic impact would be magnified by the negative fiscal impacts on the state budget.  According to the US Senate Appropriations Committee report referenced in the clip, the non-defense cuts will reduce the state’s Department of Health and Human Services budget by $35 million and education spending by $84 million—reductions that come on top of the steep cuts to state funding enacted by the General Assembly. As a result, If the current levels of sequestration takes effect, 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.

As Congress considers addressing sequestration cuts, legislators should remain mindful that while the defense cuts will certainly harm North Carolina’s economy, the non-defense cuts will prove even more damaging.

 

9 Comments

  1. George Greene

    August 3, 2012 at 3:01 pm

    I’m sorry, this is just an indisputably good thing (the cuts happening, the country going over the fiscal cliff0 ALL the way around. I say that as a person who may lose income as a result. The problem is that there are too many ignorant voters who think that spending needs to be cut. The only way to cure the fundamental disease — which is POLITICAL, NOT fiscal — is to give these idiots what they are asking for.
    Let them try living with the consequences of decreased government spending in a context where private-
    sector spending is dealing with such a massive debt overhang. They should’ve been more careful what they asked for. They are about to get it. THEY DESERVE IT. It will be more educational for them than
    any policy paper or campaign advertisement COULD EVER be.

  2. Doug

    August 3, 2012 at 6:23 pm

    Is George tuning in from another planet ?

  3. clatrence swinney

    August 5, 2012 at 9:22 am

    burlington
    Stop Borrowing=Burn Tax Book=$1100B =balances budget in 2013
    Start anew–Exemptions must serve a common good not fatten wallets

  4. clatrence swinney

    August 5, 2012 at 9:28 am

    We need Revenue + slow spending
    2000—Revenue 20% and Spending 18% of GDP=Surplus
    2009—————-15%———————25%=1400B Deficit

    In that time frame Revenue declined 30% and Spending increased 33%
    2 unfunded wars–huge tax cuts for rich–unfunded Medicare D

    Top 10% took 100% of Income Increase
    Jobs Created=33,000 per month lowest since Hoover
    Enriching Rich does not always create jobs.

  5. clatrence swinney

    August 5, 2012 at 9:35 am

    When Sandy Weil says Repeal of Glass Steagall was big mistake it is truth—–We need to go back to like S&L that served so well financing homes—County Banks–Local ownership–local deposits-local loans– keep $$ circulating in counties–preserve local wealth–
    Today 5 Big have 50% all deposits in 7000 banks and 10 have 80%
    They gouge. They maximize profits. They do not crate new local industry and jobs. International investing not local.

    shame on us

  6. clatrence swinney

    August 5, 2012 at 9:43 am

    WHY IS THIS NOT A BIG PROMO????

    Net New Jobs Per Year
    Rounded numbers
    Wall Street Journal 1-19-09

    Clinton-2,900,000
    Carter—2,600,000
    Johnson-2,300,000
    Reagan–2,000,000
    Nixon—-1,700,000
    Kennedy-1,200,000
    Truman– 1,100,000
    Ford——- 745,000
    Bush I—– 625,000
    Eisenhower 438,000
    Bush II—- 375,000

    Democrat—10,100,000
    Republican– 5,883,000

    Per Day In Office
    Democrat—10,125 Days
    Republican-13,149 Days

    Jobs per day
    Democrats-997
    Republicans-447

  7. Alex

    August 6, 2012 at 10:40 am

    When you consider that we borrow 40 cents of every dollar, this is really a paltry amount over 10 years, and will do nothing towards the national debt. the Obama mantra “Print More Dollars” is taking us down the road to insolvency very quickly.

  8. david esmay

    August 6, 2012 at 11:04 am

    Alex, running huge deficits and debt financing growth is a failed conservative invention.

  9. Alex

    August 6, 2012 at 1:58 pm

    The biggest deficit is simply a product of your own mind david !