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How does the sequester compare to budget cuts past? A brief history

Former Sen. Alan Simpson, (R-WY) (R), and Erskine Bowles participate in a Joint Deficit Reduction Committee hearing on Capitol Hill, on November 1, 2011 in Washington, DC.

Barring a political miracle, the budget hacking we know as the sequester will start Friday: $1.2 trillion over 10 years. The first round of cuts will be about $85 billion for the fiscal year ending September 30. Sounds bad -- and it may delay the economic recovery and cost jobs -- but the sequester isn’t the biggest spending cut ever, economists say.

“In 1982, there was an agreement to cut spending in $280 billion over three years,” says John Makin, a resident scholar with the American Enterprise Institute (AEI). In current dollars, he says, that’s double what we’re looking at now. “Those spending cuts were sharper over three years.”

Then it happened again in the 1990s. The so-called “peace dividend” after the end of the Cold War when government cut defense spending, says Bill Gale, co-director of the Urban-Brookings Tax Policy Center.

But it might be the worst timed. Previous cuts "[took] place in an economy that could absorb the cuts,” Gale says.

In the 90’s, economic growth fueled by the tech boom helped compensate for lower federal spending. Now, the economy is weak: Growing, but pretty slowly.

“The issue isn’t the size of the spending cuts, it’s that we’re doing spending cuts at all in this environment,” Gale notes, citing examples in Europe such as Greece and the United Kingdom where spending cuts during periods of economic distress deepened or caused recession. 

Makin, at AEI, disagrees.

“When is there a good  time? There’s an intrinsic conflict between keeping the economy growing at a good solid pace and reducing the deficit,” he asks.

Their views mirror the current disagreement in Congress over how to cut the deficit. Sometimes the facts are obscured in the political rhetoric.

“Look at the data. Look at actual spending,” says Jim Savage at the University of Virginia.

According to the Office of Management and Budget website, total government outlays from one year to the next fell only once since 1955. While there have been cuts -- sharp ones, on par with current sequestration -- to many programs that have reduced deficits, total spending has rarely ever actually decreased. 

In that sense, says Savage, “There has not been something of the current magnitude.” 

The OMB said in a statement: “The magnitude and nature of the cut required by sequestration is unprecedented." It predicts total government budget spending will decrease for two years in a row for the first time in half a century.

What’s really different now is the indiscriminate nature of the looming budget.

“It will fall like an axe, with no priorities, no nothing. The people will be damned irritated,” says Alan Simpson. The former Republican senator from Wyoming has been trying in vain with Democratic colleague Erskine Bowles to forge a political compromise on spending and taxes. He says one thing that won’t get sequestered: Finger pointing. 

“The parties will try to see who to pin the blame on, and that’s a great game,” he says. “It should be America first and party second, sick idea.”

When it comes to budget cuts, the blame game is something with plenty of historical precedent.

About the author

Sabri Ben-Achour is a reporter for Marketplace, based in the New York City bureau. He covers Wall Street, finance, and anything New York and money related.
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