Blog author: jcarter
by on Monday, February 25, 2013

Another week, another Congress-created budget crisis. First it was the sovereign debt crisis, then the fiscal cliff crisis, and now the sequester crisis. Here’s what you need to know about the sequester.

What exactly is the sequester?

In August 2011 Congress passed the Budget Control Act (BCA) to prevent the sovereign default that could have resulted from the 2011debt ceiling crisis. The BCA not only created the Joint Select Committee on Deficit Reduction (aka the “supercommittee”) but stipulated that if the committee didn’t agree to a $1.5 trillion over ten years deficit-reduction package by Nov. 23, 2011, then sequestration of $1.2 trillion would begin on January 1, 2013 and be spread over the next ten years. (The term sequester refers to a general cut in government spending.)

Why didn’t the cuts go into effect on January 1?

Congress agreed during the fiscal cliff crisis—in the American Taxpayer Relief Act of 2012—to push the deadline for the sequester to March 1.

What automatic cuts go into affect during the sequester?

According to Pew Charitable Trusts, half the sequester applies to defense spending while half would apply to non-defense. The Congressional Budget Office estimates that about 70 percent of mandatory spending would be exempt from sequestration, almost all of it from non-defense mandatory spending such as Medicare and Social Security.

pew-sequester

For 2013 the sequester includes:

$42.7 billion in defense cuts (a 7.9 percent cut).
$28.7 billion in domestic discretionary cuts (a 5.3 percent cut).
$9.9 billion in Medicare cuts (a 2 percent cut).
$4 billion in other mandatory cuts (a 5.8 percent cut to nondefense programs, and a 7.8 percent cut to mandatory defense programs).

But as Veronique de Rugy points out, the purported spending “cuts” arising from the sequester are merely reductions in the overall growth of spending, not actual cuts that would address and relieve the United States’ debt problems. 

While the sequester projections are nominal spending increases, most budget plans count them as cuts. Referring to decreases in the rate of growth of spending as “cuts” influences public perceptions about the budget. When the public hears “cut,” it thinks that spending has been significantly reduced below current levels, not that spending has increased. Thus, calling a reduced growth rate of projected spending a “cut” leads to confusion, a growing deficit, and an ever-larger burden for future generations.

The Heritage Foundation created a graphic that shows the how insignificant the growth in spending is compared to the total federal budget.

BL-sequestration-size-comparison

Even though the sequester orders the White House to withdraw $85 billion in spending authority from affected agencies, the nonpartisan Congressional Budget Office predicts that agencies will reduce actual spending by only about $44 billion, with the remaining cuts carried over into future years. Compared with total 2013 discretionary spending, that’s a cut of less than 4 percent.

Can the sequester be avoided?

The sequester could be avoided if Congress passes another budget deal that achieves at least $1.2 trillion in deficit reduction. Most of the plans proposed are intended only to once again to find a short-term fix. Brad Plumer of the Washington Post outlines the four plans as:

1) Senate Democrats: Replace one year of the sequester with defense cuts, domestic cuts and tax hikes.

2) House GOP: Eliminate other government programs to replace the sequester cuts.

3) House Democrats: Fend off the sequester for one year by raising taxes and cutting farm subsidies.

4) President Obama: Fend off the sequester for a short while with a smaller package of cuts and tax reforms.