Sequestration: Closing the gap on the deficit or harming the economy?
September 18, 2012
In the current state of the economy, where national unemployment rates hover over 8% and the federal deficit is projected at $1.1 trillion for FY 2012, closing the gap on the deficit is on the tip of every politicianaEUR(TM)s tongue. One way of closing this gap is through automatic spending cuts, which may at first glance seem like a smart move. But these automatic cuts -- set to take place on January 2, 2013 (formally known as sequestration) -- negatively impact many sectors of the economy. Thousands of jobs will be lost and industries that promote positive growth will be idled.

There is still time for Congress not only to reduce the deficit, but do so without implementing automatic spending cuts. As the Office of Management and Budget claims, aEURoeThe sequestration itself was never intended to be implemented.aEUR? Instead, sequestration was meant to force action in a gridlocked Congress. With the passage of the Budget Control Act of 2011, a committee was set up to propose legislation that would reduce the deficit by $1.2 trillion. The Obama Administration presented two plans to reduce the deficit through spending cuts and increases in revenue. Both plans exceed $4 trillion in reductions and would bypass sequestration. Yet despite these options, deficit reduction plans remain at a standstill, as both parties in Congress have yet to become willing to compromise. Political differences aside, Congress needs to pass a balanced deficit reduction package now, before sharp cuts drive unemployment up and reduce the ability of sectors such as the bioscience industry to sustain job creation (and benefit the health of the U.S. population as a whole).

ThereaEUR(TM)s no disputing that federal investment in medical research yields strong, positive returns. It is estimated that funding for research at the National Institutes of Health (NIH) created over 430,000 jobs in 2011 and generated $62.13 billion in new economic activity. A recently released Milken Institute report shows that every $1.00 of funding for the NIH generates at least $1.70 of output in the bioscience industry. In the overall biomedical industry, more than 5 million U.S. jobs are supported both directly and indirectly. Yet even with this high return, funding for NIH has remained fairly stagnant for the last several years.

Economic returns aside, funding in the biosciences industry also has substantial social gains. Between 1950 and 2009, life expectancy in the U.S. increased by 10 years. During this period, death rates for heart disease (the leading cause of death in the U.S.) dropped by 69%. Overall cancer death rates have decreased since 1990, while 5-year survival rates continue to increase.

Despite both economic and social gains in the bioscience sector, many programs will be on the chopping block if no action in Congress is taken to stop the automatic cuts. And these cuts will devastate federal agencies across the board. A recent report by the OMB estimates that sequestration would result in a cut of 2 percent to Medicare, 7.6 percent to other non-exempt nondefense mandatory programs, and 10 percent to non-exempt defense mandatory programs. What would these types of cuts look like in the bioscience sector? Projected cuts of $2.39 billion to the NIH would result in a loss of over 33,000 jobs and almost 1,900 fewer awards to researchers and scientists. The CDC would lose $445 million, the same amount needed to fund chronic disease prevention programs in 46 states. Medicare providers would lose about $11 billion, resulting in the loss of almost 500,000 health-care jobs in the first year of cuts alone. And the list goes on.

The clock is ticking. Now is the time for Congress to bridge the party divide and save jobs and invaluable programs before itaEUR(TM)s too late.