Sequester's Eve

At the stroke of midnight tonight, the much ballyhooed sequester goes into effect. The sequester - that series of across-the-board, mandatory budget cuts being forced upon the witting and unwitting alike - will either feel like a slap on the wrist or a sucker punch to the gut. As for me, I think one side is seriously overstating the impact, while the other side may in fact be understating it. I'm not inclined to follow Henny Penny and his band of friendly fowl, but neither am I naïve enough to think there's not a fox waiting to take advantage of the moment. Even though the cuts amount to a paltry 2% of the annual "budget" (ha), these cuts WILL have an impact as the map below indicates. How much of an impact is really a matter of degree.


The above map from the Tax Foundation leaves much to be desired, as it does not explicitly illustrate the origin and nature of the federal funding that the states receive. But it does show that every single state of the Union depends in part on federal funds to supplement revenue at the state level. Now as I understand it, the sequester is essentially an across-the-board reduction (and practically, it only reduces the projected increase in spending, but that's another matter). What that means is that a state like Mississippi, which relies on federal outlay to fulfill almost half (!) its revenue requirements for services, could potentially have a harder time absorbing the cuts than a state like North Dakota, which only relies on federal outlay for 26% of its revenue needs. The sequester will not in itself evenly and equally reduce federal outlays to the states by 2%, but every state WILL feel its impact, some more than others.

By no means am I suggesting that states should strive to be 0%. There's nothing inherently wrong with federal money flowing to the states. It is another argument for another time whether it is fiscally responsible for states to be grossly dependent on federal funding. What I am suggesting is that as long as states do depend on federal funds to balance their budgets, any cuts that come out of Washington ARE going to have an impact. Services and benefits WILL be reduced, or other revenue will have to be found (state and local tax increases) to perpetuate those services. Defense cuts will impact local economies, the degree of which will depend on the level of dependency a given local economy has on such funding.

I find it likely that at some level, everyone is going to be touched in some way by spending cuts. At the individual level, for some, it could be devastating - loss of job, benefits, etc. Others might only experience more hassle and delays in dealing with government driven programs and services. But at the 50,000 ft level, for the overall good of our Nation's fiscal health, the pain can be a good and necessary pain. Do I like the WAY it's being handled? Absolutely not, as I again state that this poorly planned, across-the-board approach is a blind, reckless approach to reducing spending. But if it works, it might in the long run be worth the pain. Because I'll tell you this: suffering the effects of a 2% cut is far preferable to a full economic collapse that will undoubtedly result from continued runaway spending and debt.

Now, it would be nice if Washington was smart enough to realize that spending cuts would actually be much easier to handle if it wasn't suffocating the economy with over-regulation and over-manipulation of the market.

See you on the other side. Because come March 27th, we'll be doing this again. Except then, we'll be talking shutdown.