Coming up on March 1st is the automatic implementation of sequestration cuts.
T hese cuts uniformly and bluntly cut each and every government program by the same percentage across the board.
The reason these cuts are going into effect is that Congress was unable to reach an agreement following the 2011 debt ceiling crisis, and their failure to compromise has led to a situation that both parties regret.
The sequestration cuts will have a devastating impact on the economy. The austerity program is estimated to cause the loss of a baseline 1 million jobs, shaking an already fragile recovery to its core. Impacted the most by the austerity cuts will be middle class families and working class people in the manufacturing industry. The cuts are expected to delay a full recovery by a year and potentially initiate a recession.
However, several members of Congress have produced a plan that balances the way the U.S. pays down the deficit, removing the austerity cuts in lieu of loophole closures.
Moreover, the plan involves additional infrastructure investments in roads and schools designed to stimulate the sluggish recovery rather than hamstring it.
The issue? It's a very long shot to pass. Actually, it has zero chance.
Democratic progressive Representatives Keith Ellison and Raul Grijalva have sent out a new budget plan "The Balancing Act" as an alternative to sequestration, Greg Sargent at WonkBlog reports.
The plan has three phases of deficit reduction, two of which have already occurred.
- $1.7 trillion in spending cuts from the Budget Control Act sequestration
- $737 billion in new revenues as part of the American Taxpayer Relief Act solution to the fiscal cliff
- Replace the $948 billion sequester cuts with around the same amount in new revenues derived from closing loopholes and income tax reductions that favor corporations and wealthy Americans.
This becomes a $3.3 trillion deficit reduction over the long term.
But the most important part is an injection of stimulus into the economy in the form of infrastructure spending and other aspects of the American Jobs Act.
This is paid for by cutting $278 billion in defense and re-purposing it for domestic investment with the intention of creating jobs domestically.
The $948 billion sequestration replacement is comprised of closing certain loopholes and decreasing deductions. Over time, these would cancel out the ten year automatic austerity package of sequestration:
- 28 percent limitation on certain deductions and exclusions ($482 billion)
- Close carried interest loophole ($17 billion)
- Close loopholes for jets and yachts ($4 billion)
- Close international tax system loopholes ($161 billion)
- End subsidies for fossil fuels ($94 billion)
- Close the exclusion of the foreign earned income loophole ($71 billion)
- Close corporate deduction for stock option loophole ($25 billion)
- Close estate tax loophole ($23 billion)
- Close the S corporation loophole ($13 billion)
- Cut corporate meal and entertainment deduction to 25 percent ($70 billion)
- Extend the Making Work Pay Credit for an additional year
- Invest $25 billion in school modernization
- Spend $160 billion in immediate investments in highway, rail and aviation infrastructure.
The downside, naturally, is that this plan is generally regarded as having zero possible chance of passing. Read the full text here.
(Via Greg Sargent)
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