We’ve been hearing a lot of news about the sequester. What is it exactly and what does it mean for my small business? Basically the sequester is a group of spending cuts that went into affect March 1st as a part of the debt ceiling compromise. It’s split between domestic programs (like WIC, schools, etc) and defense programs. While most cuts are discretionary spending cuts, some do affect, but to not stop, programs like unemployment, Medicare, and other low-income programs. The amount of the cuts are set to increase every year through 2021. Although it’s early to say, some jobs will be lost but not huge number of jobs are expected to disappear. Overall the affects are expected to knock off about 0.6% from the GDP this year.
What are the different parties pushing for in response? Obama is pushing to close tax loopholes and increase tax on the wealthy. Democrats, in addition to Obama’s push, also are pushing for the repeal of oil company subsidies. Republicans want to focus mostly on domestic spending cuts (versus tax increases or defense cuts).
How am I affected? The businesses who will be hit the hardest are those who contract with the federal government. Although it’s uncertain how much or when these businesses will be effected. Other businesses will feel a ripple if they are suppliers to these companies who do get government contracts as well. Some companies, expecting to be hit hard, have worked to diversify their offerings as a way to prepare and stay competitive. Some economists are saying you can expect the overall affect as a whole to be less than the increase of social security was in January.
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