Independent Analysis: Sequester Spending Cuts Would Cost 700,000 Jobs

President Obama today called, once again, for Republicans in Congress to support a plan to void the so-called “sequester,” the automatic budget cuts scheduled for March that were set in motion by the 2011 debt ceiling deal. House Republicans responded by releasing a statement that called for eliminating job training and financial literacy programs and by mocking the very idea of government funded scientific studies.

But engaging in the sort of austerity included in the sequester is a terrible idea with the economy in its current fragile state. As Macroeconomic Advisers noted today (reiterating its previous analysis), the sequester will knock 0.6 percent off of economic growth this year, killing 700,000 jobs:

— Our baseline forecast, which shows GDP growth of 2.6% in 2013 and 3.3% in 2014, does not include the sequestration.

The sequestration would reduce our forecast of growth during 2013 by 0.6 percentage point (to 2.0%) but then, assuming investors expect the Federal Open Market Committee (FOMC) to delay raising the federal funds rate, boost growth by 0.1 percentage point (to 3.4%) in 2014.


By the end of 2014, the sequestration would cost roughly 700,000 jobs (including reductions in armed forces), pushing the civilian unemployment rate up ¼ percentage point, to 7.4%. The higher unemployment would linger for several years.

Here are the competing plans to void the sequester that have been proposed in Congress. The GOP has yet to introduce an official plan this time around, instead just pointing to legislation that it passed in the last Congress. Of all the plans, only the Congressional Progressive Caucus’ acknowledges that the country’s most pressing issue right now is not the deficit, but lingering, high unemployment.