“Sequestration” would have severe impacts on small businesses

October 18, 2012 at 10:41 am 3 comments

Unless Congress can reach a budget deal before the end of the year, $109 billion in mandatory federal budget cuts– an estimated 10 percent of the federal budget– will be enacted on January 2, 2013. Although some members of Congress are working toward a deal, which would be voted on after the recession and after Congress returns from recess, it is unclear what this deal would look like or if it’s even a sure thing.

The San Jose Mercury News reports that these cuts– called “sequestration”– will have significant impacts on small businesses that have federal contracts. It could lead, according to some analyses, to the loss of 1 million small business jobs. This would be devastating for small businesses and the economy as a whole. Taking no chances, many small businesses are already preparing for this possibility by seeking non-governmental contracts, cutting back on hiring, and cutting spending.

Citing a study by George Mason University and Chmura Economics and Analytics, the Mercury News points out that the effects will reach beyond just those businesses with federal contracts:

But it goes beyond the job losses likely to be suffered by companies with government contracts. It also includes businesses that benefit indirectly. For example, a company that provides cleaning or catering services to a government contractor might be one of the casualties when a contractor has to cut costs. Or a retailer that depends on a contractor’s staffers for its business may have to lay off workers when sales fall. “A lot of these companies don’t know they’re dependent on federal contracts,” says Stephen Fuller, a professor of public policy at George Mason in Fairfax, Virginia.

The study also provides state-by-state estimates of job losses due to the budget cuts. In North Carolina, it is estimated that the total job losses would be close to 30,000.

In an already sluggish economic recovery, the impact of sequestration and consequent job losses could lead us right back into another recession, as some economists have warned. As stated by George Mason/Chmura study, the effects of these budget cuts would be felt for years to come, but in the immediate term

“… economic losses would reverse the positive GDP trend occurring since the recovery began in June 2009 and push the U.S. economy towards recession with the associated job loss raising the unemployment rate by as much as 1.5 percentage points above the current level.”

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Entry filed under: Economic Development, Economy, Jobs & Employment, Small Business. Tags: , , , .

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