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Deficit reduction graphIn the incessant yammering that continues about the federal budget deficit, one of the great underreported facts in recent months is that President Obama and Congress have actually already made enormous progress.

As Richard Kogan of the Center on Budget and Policy Priorities and Allan Freyer of the Budget and Tax Center have reported here and here, the fiscal cliff deal combined with other decisions have combined to slash the projected deficit over the next decade by $2.7 trillion. Indeed, with another $1.5 trillion in savings/tax increases, the country will be in a good place on this issue.

Today, Kogan highlights (see the graph at left) another related and underreported fact about the deficit reduction already enacted: the vast majority of it (70%) comes from program cuts.  Kogan’s data provides more compelling evidence that tax increases simply have to be a part of any new federal budget deal if the’re going to be a truly balanced approach to deficit reduction that doesn’t throw the country back into recession with Europe-like austerity.

The looming federal sequestration cuts have been all over the news recently, as the clock ticks down to the March 1 deadline imposed by the fiscal cliff deal.  While most media accounts have focused on the negative consequences these across-the-board spending cuts will have on defense programs and military communities, the cuts to federal non-defense domestic programs will also have profoundly damaging—if often underreported—impacts on the North Carolina state budget. In light of these impacts, Congress needs to repeal sequestration and replace these indiscriminant, automatic spending cuts with a balanced approach that includes at least one dollar in new revenues for every dollar of smart spending reductions and that protects the state budget.

Enacted in the Budget Control Act of 2011, these sequestration spending cuts were intended to automatically reduce funding for national defense and domestic programs like K-12 education, job training, Head Start, food inspects, and research and development by $1.2 trillion over the next decade if Congress could not find another way to reduce the federal budget deficit before December 31, 2013. Congress postponed that New Year’s deadline to March 1, and if Congress does not resolve this issue in time, North Carolina will experience $85.3 billion in sequestration cuts in 2013 alone.

According to a wide range of analysis conducted over the past two years, sequestration is expected to inflict significant damage on North Carolina’s economy and state budget. On the defense side, the cuts to Pentagon spending are estimated to cost North Carolina at least $1.5 billion in defense contracts and as much as 12,000 in job losses.  At the same time, the non-defense cuts are also expected to harm the state’s economy by reducing North Carolina’s Gross State Product by as much as $2 billion and contributing to more than 17,000 in job losses.

In a new twist on an old problem, the economic impact of these federal cuts would be magnified by the negative fiscal impacts on the state budget.  Specifically, 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 already enacted by the General Assembly in state FY 2011-13.

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