On March 1, a group of automatic spending cuts known as the sequester will go into effect unless Congress and President Obama can come together in an agreement to replace the sequester. No one in the establishment media or alternative media seriously expects such an agreement to occur. Given that the cuts will almost certainly occur, let us take a look at some of the myths concerning the sequester, as well as the real truth behind them.
Myth #1: The sequester will cut spending.
Truth: This myth is false. The sequester does not cut baseline government spending, but rather slows the rate of growth of government spending. What is widely claimed to be a spending cut is actually a $110 billion increase in spending over 10 years rather than a $1.105 trillion increase in spending. But because most people do not know calculus, and therefore do not know the difference between altering a function and altering the derivative of a function, myths like this one persist in our society.
Myth #2: The sequester will kill jobs.
Truth: Perhaps so in the short term, but there will be no net loss of jobs over the long term. To see why, let us consider the parable of the broken window, for which the broken window fallacy is named. As Frédéric Bastiat explained in his 1850 essay Ce qu'on voit, et ce qu'on ne voit pas (That which is seen, and that which is not seen), opportunity costs have an important effect that is frequently ignored, especially by Keynesian economists. In the case of cutting government spending, the broken window fallacy explains why jobs will not be destroyed over the long term. A decrease in government outlays sets in motion a decrease in the diversion of real savings from wealth-generating activities to non-wealth-generating activities, which will lead to economic enrichment and recovery. Such cuts are bad news for jobs that only exist because of government spending, but after a short correction period of perhaps one or two quarters, new private sector jobs will emerge to replace them. To claim that there will be a long-term net job loss after cutting government spending is to commit the broken window fallacy.
Myth #3: The sequester will cause layoffs of teachers, firefighters, police officers, and first responders.
Truth: This myth is false. These occupations are paid for by state and local governments, as well as the private sector. The federal government is the one having its rate of growth reduced, and it is not responsible for hiring them, firing them, or paying their salaries.
Myth #4: The sequester will cut the salaries of federal employees.
Truth: This myth is only a half-truth. The Congressional Research Service says that a sequester may not “reduce or have the effect of reducing the rate of pay an employee is entitled to” under their federal pay scale. However, the sequester is likely to cause furloughs, which amount to unpaid time off.
Myth #5: The sequester will cut Social Security and benefits for veterans.
Truth: This myth is false. These programs are exempted from sequestration by Section 255 of the Balanced Budget and Emergency Deficit Control Act of 1985.
Myth #6: The sequester will cause delays in tax refunds.
Truth: This myth is probably true. The Internal Revenue Service faces an 8.2 percent budget cut from sequestration, which will mean that fewer tax specialists can be kept on duty (see Myth #4.) This will likely lead to delays in tax refunds.