Headline Explained: Federal Budget Cuts

Most market news articles you find on the internet have a knack for making finance topics very confusing. We’ve decided to take these complicated articles, strip away the jargon, and break them down for you in simple terms. The way it should be…

650,000 Defence Employees Start Furloughs Monday – CNN Money

First and foremost, let’s clear up a few terms:

Sequester: The sequester refers to the 2013 budget sequestration, which are the federal budget cuts that the U.S. government decided to implement at the beginning of the year. These cuts will all take place within federally run programs, such as:

  • Defence forces
  • Public Education
  • Social Security
  • Health and Environmental Programs

The total reductions in spending will be around $85.4 billion this year. The savings will increase after 2013 and are expected to save an average of $238.6 billion yearly over the next ten years.

Furlough: A furlough is a temporary unpaid leave for employees, usually (as in this case) due to economic conditions. So instead of laying people off, employees are instead given a short break.

Now, on to the article…

This week, the defence forces portion of the sequester kicks in. 650,000 employees will have to take one unpaid day off each week. This amount to a 20% decrease in their pay.

This is expected to slow down productivity as well as equipment delivery times within the military. There may also be problems in rural military areas that depend mainly on military bases for work.

There are many who criticize the quick way these spending cuts are being implemented, and some who feel that they should be postponed until the economy improves. Congress has taken some action by cancelling budget cuts in the airline and food industries.

What are your thoughts on the federal budget cuts in the military? Leave your answer in the comments section below. 

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