Hidden Costs of Sequestration: Save Now, Spend Later

February 28, 2013

The budget cuts scheduled to go into effect Friday are designed to save the government $85 billion this year. But officials and budget analysts say some of those short-term savings could actually cost the government money in the long run.

The most obvious example: tax collections. Through across-the-board cuts, the so-called sequester would take $436 million out of the Internal Revenue Service's enforcement budget this year. Given the widely accepted belief that the IRS generates $4 in increased tax payments for every $1 in enforcement, the government could eventually lose $1.7 billion.

"Thus," acting Treasury Secretary Neal Wolin argued in a Feb. 7 letter to Congress, "each dollar the sequester cuts from current IRS operations would cause a net increase to the deficit, as the lost and forgone revenue would exceed the spending reduction."

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