One-year Out: A Closer Look at Sequestration
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Over the past year, “cutting spending” has become more popular in Washington. When the debt ceiling was raised last August, a provision ensured that spending would be cut even if the “Super Committee” failed to reduce the deficit. Now that the Super Committee has failed and sequestration will go into effect in one year, what is sequestration and will it get the United States’ fiscal house in order?
- Legal Establishment
- What Happens Now Since the Super Committee Failed?
Last August, the President signed the Budget Control Act into law.(1) In addition to raising the debt ceiling, the law slowed the increase of future federal government spending, as outlined in this infographic, by establishing certain spending caps on spending. Additionally, the Budget Control Act established a Joint Selection Committee on Deficit Reduction, also known as the “Super Committee,” to find further cuts in federal spending.
What Happens Now Since the Super Committee Failed?
But Washington failed America because the Super Committee failed to act, which triggered a process called sequestration. What is sequestration? By definition, sequestration makes spending reductions to get budget levels in line with statutory spending goals.(2)
It should be noted that the Budget Control Act technically gives Congress and the President until January 15, 2012, to enact a deficit reduction measure of at least $1.2 trillion over ten years. However, the Senate is not scheduled to resume legislative businesses until January 23, 2012, thus it is virtually certain that the sequestration will be triggered on January 15, 2012, and sequestration will go into effect on January 2, 2013.(3)
- Congress and the President have the ability to amend the sequestration process triggered by the Budget Control Act.(4)
- In fact, there already are talks of amending the Budget Control Act so the sequestration cuts are modified, especially in regard to defense spending.(5)
- Many federal programs are exempted from the sequestration process—some of these exempted programs include Social Security, Medicaid, and federal retirement and disability programs, among others.(6)
Are these really cuts triggered by sequestration? A look at defense.
It should be noted that half of all of the cuts triggered by sequestration come from defense. So does sequestration make real cuts to defense?
- Not really. In one scholar’s research, it was determined that “in spite of an initial reduction in 2013…defense spending will continue to grow.” Accounting for inflation, defensing spending would be flat.
- The scholar determined that, “leaving inflation aside, military spending will grow by about 10 percent as opposed to the 18 percent without the (sequestration) cuts.”(7)
But at least it’s a start. It will reduce our debt, right?
No. According to the non-partisan Congressional Research Service, the Budget Control Act doesn’t do enough to get The United States’ debt under control. “While the Budget Control Act is projected to reduce the deficit, it does not eliminate budget deficits or growth in the federal debt…” over the next 10 years. Under one projection, over the next 10 years, the deficit is expected to grow an additional $8.5 trillion if the nation continues down its current fiscal path.(8)
A hypothetical example of what might happen since the Super Committee failed:
- The non-partisan Congressional Research Service estimates in one hypothetical example that the failure to enact legislation to reduce the deficit by $1.2 trillion by January 15, 2012, there would be spending cuts of $109.3 billion each year over fiscal years 2013 – 2021.(9)
- In general, for each year, the $109.3 billion in cuts are split equally between defense and non-defense spending. In other words, $54.7 billion of the savings would come from defense spending and $54.7 billion will come from non-defense spending.(10)
- At the end of the day, the non-partisan Congressional Research Service estimates that the automatic trigger would only cut $984 billion in spending over nine fiscal years, FY2013 – FY2021, since Congress is able to account for the savings from reduced interest payments assumed by the sequestration’s deficit reduction.(11)
Where will these automatic cuts come since there was Congressional inaction?
- According to the independent Congressional Budget Office, a large majority of total cuts, 71 percent, would come from reductions in discretionary appropriations. Thirteen percent would come from mandatory spending reductions while the remainder would come from interest payment savings accomplished through trigger’s deficit reduction.(12)
- In general, discretionary appropriations are things that are funded by yearly appropriations bills, such as defense spending and justice spending.
- In general, mandatory spending represents things like Social Security, Medicare, and Medicaid and is funded automatically, outside of the yearly appropriations process.
- Between 2013 and 2021, defense spending would be reduced by $492 billion; nondefense activities would be reduced by $492 billion as well.(13)
- In calculating non-defense reductions, “…a significant portion of mandatory spending…” is exempt from sequestration.(14) Such mandatory spending includes Social Security and Medicaid, among others.(15)
- One mandatory spending item that would be cut is Medicare. However, the law restricts the automatic cuts for Medicare triggered by Congressional inaction.
- The non-partisan Congressional Budget Office estimates that Medicare would be reduced by $256 billion between Fiscal Years 2013 – 2021.(16)
More on the discretionary spending cuts if there is Congressional inaction:
- As referenced above, 71 percent of all savings resulting from sequestration are projected to come from reductions in discretionary appropriations.
- For these discretionary cuts, across the board cuts would only apply for fiscal year 2013. For fiscal years 2014 – 2021, discretionary spending would be adjusted by further lowering spending caps on discretionary spending, allowing Congress and the President to determine what reductions to make in the yearly discretionary spending process.(17)
The simple fact is that $1.2 trillion in deficit savings over nine years since Congress failed to act and sequestration will be triggered is just a small start. During the last fiscal year the federal government ran a deficit of $1.3 trillion.(18) In other words, in one year the government ran a deficit that is more than all of the savings achieved over nine years through the sequestration process. With the national debt standing at around $15 trillion, many experts have suggested that Congress needs to achieve a minimum of $4 trillion in savings if we want to reverse the current fiscal course of the nation.(19)
Additionally, it is important to note that the effects of the sequestration might not be that meaningful in terms of actually cutting spending. One scholar estimated that over the trigger’s nine-year window, when taken it totality, the savings are achieved by slowing the rate of government spending over time – not by making cuts to spending in dollar terms.(20)
Regardless, since 2010, Congress has continued to moderately chip away at discretionary spending. In the last fiscal year, discretionary spending made up close to 40 percent of all federal spending.(21) And if sequestration goes into effect, discretionary spending with share most of the burden of deficit reduction again.
The simple reality is this: you cannot get this nation’s fiscal house in order if you ignore certain types of spending. Congress must seriously address all spending, including defense spending in addition to entitlement spending like Social Security, Medicare, and Medicaid, because all federal spending should be on the table if we are to get our fiscal house in order.
1 For more information, see our fact sheet on The Debt Limit Compromise at http://www.bankruptingamerica.org/wp-content/uploads/2011/08/Washington-Debt-Plan-Compromise.pdf
2 CRS: Budget Sequesters: A Brief Review. March 8, 2004. P. 2.
3 CRS: The Budget Control Act of 2011. August 19, 2011. P. 3. http://www.himss.org/content/files/pulse/2011CRSRept-TheBudgetControlActof2011.pdf and the Congressional Record for the Senate for December 17, 2011.
4 CRS: The Budget Control Act of 2011. August 19, 2011. P. 27. http://www.himss.org/content/files/pulse/2011CRSRept-TheBudgetControlActof2011.pdf
5 The Los Angeles Times: Congress works to avert defense budget cuts. October 25, 2011. http://articles.latimes.com/2011/oct/25/nation/la-na-defense-supercommittee-20111026
6 CRS: The Budget Control Act of 2011. August 19, 2011. P. 31. http://www.himss.org/content/files/pulse/2011CRSRept-TheBudgetControlActof2011.pdf
7 Mercatus: Defense Spending Excluding War Funding. December 5, 2011. http://mercatus.org/publication/defense-spending-excluding-war-funding.
8 CRS: The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit. September 16, 2011. http://www.aau.edu/WorkArea/DownloadAsset.aspx?id=12708. P. Summary.
9 CRS: The Budget Control Act of 2011. August 19, 2011. P. 30. http://www.himss.org/content/files/pulse/2011CRSRept-TheBudgetControlActof2011.pdf
10 CRS: The Budget Control Act of 2011. August 19, 2011. P. 30. http://www.himss.org/content/files/pulse/2011CRSRept-TheBudgetControlActof2011.pdf
11 CRS: The Budget Control Act of 2011. August 19, 2011. P. 30. http://www.himss.org/content/files/pulse/2011CRSRept-TheBudgetControlActof2011.pdf
12 CBO: Testimony of Douglas W. Elmendorf on Discretionary Spending. October 26, 2011. P. 17. http://www.cbo.gov/ftpdocs/124xx/doc12490/10-26-DiscretionarySpending_Testimony.pdf.
13 CBO: Testimony of Douglas W. Elmendorf on Discretionary Spending. October 26, 2011. P. 15. http://www.cbo.gov/ftpdocs/124xx/doc12490/10-26-DiscretionarySpending_Testimony.pdf.
14 CBO: Testimony of Douglas W. Elmendorf on Discretionary Spending. October 26, 2011. P. 15. http://www.cbo.gov/ftpdocs/124xx/doc12490/10-26-DiscretionarySpending_Testimony.pdf.
15 CBO: Testimony of Douglas W. Elmendorf on Discretionary Spending. October 26, 2011. P. 4. http://www.cbo.gov/ftpdocs/124xx/doc12490/10-26-DiscretionarySpending_Testimony.pdf.
16 CBO: Testimony of Douglas W. Elmendorf on Discretionary Spending. October 26, 2011. P. 15. http://www.cbo.gov/ftpdocs/124xx/doc12490/10-26-DiscretionarySpending_Testimony.pdf.
17 CRS: The Budget Control Act of 2011. August 19, 2011. Pp. 3-4. http://www.himss.org/content/files/pulse/2011CRSRept-TheBudgetControlActof2011.pdf
18 CBO: Monthly Budget Review. November 7, 2011. http://www.cbo.gov/ftpdocs/125xx/doc12541/2011_Nov_MBR.pdf
19 PBS Report: Super Committee Urged to ‘Go Big’ on Deficit Cuts. November 1, 2011. http://www.pbs.org/newshour/bb/politics/july-dec11/committee_11-01.html
20 Mercatus: Federal Spending Without & With Sequester Cuts. http://mercatus.org/sites/default/files/publication/fed-spend-without-with-sequester-chart-analysis_0.pdf
21 CBO: Testimony of Douglas W. Elmendorf on Discretionary Spending. October 26, 2011. P. 1. http://www.cbo.gov/ftpdocs/124xx/doc12490/10-26-DiscretionarySpending_Testimony.pdf.