Budget Sequestration ("Sequester")
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What is Sequestration and How Does it Work?
- In the absence of an FY 2014 bipartisan budget deal, the law requires OMB to impose, following Congress' adjournment, across-the-board cuts of $55 billion in defense spending and $37 billion in non-defense spending compared to the "pre-sequester" levels. Click here to see the pre- and post-sequester spending levels.
- In addition, a 2 percent cut will be applied to Medicare and a uniform percentage reduction computed by the Office of Management and Budget (OMB) will be applied to other non-exempt mandatory (entitlement) programs to bring total non-defense cuts up to $55 billion.
- (Click here for an explanation of when the 2014 sequester takes effect.)
- If Congress passes appropriations bills that exceed the reduced discretionary caps, automatic across-the-board cuts ("sequestration") will be applied by OMB after Congress adjourns to enforce the caps. However, some of the government's largest programs are exempt from sequestration including Social Security, Medicaid, all veterans programs and some -- not all -- low income programs including food stamps (SNAP). Medicare, though not fully exempt, is limited to a 2 percent cut in payments to providers.
Low-income and special needs programs that remain subject to sequester include:
- IDEA special education funding
- Head Start
- Seniors Meals on Wheels
- WIC (nutrition for low-income pregnant women, infants and young children)
- Emergency unemployment compensation
- Low-income housing assistance (vouchers, section 8 project-based, public housing)
- Homeless assistance (including vouchers for low-income Americans)
- Vocational rehabilitation
- Social Services Block Grant
- Hurricane Sandy relief
- Student Loan origination fees
Click here for a summary of all exempt programs.
Economic Impact of Sequestration
- September 26, 2013: Congressional Budget Office Director Douglas Elmendorf said in a September 26, 2013 letter that “eliminating the automatic spending reductions specified in the Budget Control Act beginning in fiscal year 2014 would increase real gross domestic product (or GDP adjusted for inflation) by 0.5 percent and increase fulltime-equivalent employment by 600,000 relative to the amounts under current law.” Eliminating the sequester, at least for the next couple years (it is currently slated to occur automatically in each year through 2021) is a key priority of Senate Democrats in the appropriations impasse that has held up FY 2014 spending bills. The major demand on the Republican side in the spending bill impasse has been de-funding or delaying Obamacare.
- Over the longer term, automatic spending cuts are required by law to be applied in each fiscal year through FY 2021--in total, about $1.2 trillion in budget reductions (comprised of $821 billion in discretionary cuts, $163 billion in mandatory - mostly Medicare - cuts, and $216 in interest savings).
- The $821 billion in automatic discretionary cuts are in addition to the $900 billion already in place due to 10 years of discretionary spending caps imposed by the Budget Control Act. (The caps imposed by the 2011 law save money in each year through 2021 because they keep discretionary appropriations well below levels necessary to maintain current levels of services and benefits provided by the federal government. For example, the reduced appropriations levels do not allow for adjustments to keep pace with inflation, population growth, and health care costs.)
- Because the FY 2014 automatic cuts will take effect on October 1, 2013, numerous bills are being floated to soften the impact for various programs and agencies -- although a piecemeal approach could reduce the impetus to reach an overall agreement on replacing the sequester.
- Many argue that imposing automatic cuts on discretionary spending are an abysmal way to accomplish deficit reduction because it imposes cuts on the portion of the budget -- annual discretionary appropriations -- that are least responsible for the long-term debt crisis and where most of our nation's most vital government functions reside: national defense; homeland security; veterans healthcare; law enforcement; construction of airports, highways, and bridges; disaster relief; food, drug and water inspection; college aid; education for disabled children; low-income food, energy, housing and education assistance; and medical research.
- The Congressional Research Service recently calculated that non-defense discretionary spending has declined from 7% of GDP in 1977 to about 3% this year and is heading closer to 2% by the end of the decade.
- Similarly, defense discretionary spending has declined from about 7% in the 1980s to about 3.5% of GDP this year and will soon fall below 3%.
- In FY 2013, inflation-adjusted discretionary spending (excluding war, disaster and emergency spending) is lower than FY 2005 levels.
Link to Congressional Research Service report: Trends in Discretionary Spending
- On the other hand, it is the non-discretionary programs -- the entitlements -- that are rapidly
escalating and are the most significant contributors to long-term growth in U.S. public debt --
due to the rapid rise in health care costs and the aging of the population.
- Over 10 years, the Budget Control Act (spending caps and sequestration) will have cut discretionary spending by $1.6 trillion, whereas mandatory (i.e. entitlement) spending is cut by less than $200 billion, with most of that coming from Medicare. Link to Congressional Research Service report on the effects of the Budget Control Act.
- Link to a CRS report on how the spending caps and automatic cuts are impacting deficits
Link here to a table showing the impact of the automatic cuts, year-by-year
Numbers alone can't tell the story. Click on the links below for Impacts of the
sequester on government operations and services:
- Agency summaries
- Washington Post summary of agency-by-agency impact
- New York Times: Budget Battles causing uncertainty in agency operations
- National Defense
- Undoing Progress at the Navy
- Unemployment Benefits
- WIC (nutrition for low-income women and children)
- Head Start
- Meals on Wheels
- NIH grants
- Sequester Squeezes Scientists
- Housing Assistance
- Special Needs Students and Low-Income Children
- Education Programs
- US Courts
- Interfering with Trade Negotiations
- Sequester's Toll on Federal Workers, Families
How Budget Sequestration Operates - Additional Background: