Sequestration: DC's Weird Idea of Cuts

Different kinds of spending will be hit harder by percent. In September, the Office of Management and Budget estimated that if the cuts occurred as projected in January, discretionary defense spending would be cut by 9.4 percent in FY2013, mandatory defense spending would be cut by 10 percent, discretionary nondefense spending would be cut by 8.2 percent, mandatory nondefense spending would be cut by 7.6 percent, and Medicare and other mandatory health programs would be cut by 2 percent.

Some vital programs, however, will be exempt.

What Will Be Spared?

Thankfully for beneficiaries, the sequester won't touch some of the most popular and relied-upon elements of the social safety net.

Medicare, for instance, will be cut -- but under a special rule that limits spending reductions to 2 percent, and which also prevents any benefits from being reduced. Sequestration cuts would come in the form of lower payments to doctors, hospitals and private insurers, according to the Congressional Research Service.

Other programs are totally exempt. Those include Social Security, all programs administered by the Veterans Administration, Medicaid, the Children's Health Insurance Program (CHIP), welfare (a.k.a. Temporary Assistance for Needy Families or TANF), Pell grants, food stamps (a.k.a. the Supplemental Nutrition Assistance Program or SNAP), and Medicare Part D low-income subsidies, among other programs.

Nobody knows exactly how it will play out. In January, the Congressional Research Service wrote, "Ultimately, the execution and impact of any automatic spending reduction ... will depend in large part on the legal interpretations and actions taken by OMB."

Has This Ever Happened Before?

Yes, but not since the 1990s.

Back then, Congress and the president worked under budget goals enforced by sequestration. In FY1991, they failed to meet those goals, and sequestration lopped off 1.9 percent from the federal government's international budget and .00013 percent from its domestic budget.

Sequestration is still written into law as part of the PAYGO (pay-as-you-go) law, passed by Democrats when they held the House majority, that requires all spending to be offset by cuts or tax hikes -- n other words, to be paid for. But that doesn't apply to "emergency" spending -- and disaster aid, unemployment payments and the economic stimulus package were all fit under that "emergency" umbrella.

So while the sequestration concept has loomed over federal spending for some time, it hasn't happened since 1991.

Will There Be Furloughs?

Maybe. The Office of Management and Budget will guide the sequestration process, and each agency will have some responsibility to find its own ways to save money.

But furloughs for government workers could be in the offing. Last week, Agriculture Secretary Tom Vilsack told meat producers that USDA may have to furlough food inspectors -- something the industry says could have drastic consequences, as meat and poultry needs to be inspected before it can be sold.

Why Does the Sequester Have to Happen?

It doesn't!

Congress and the president gave themselves a requirement to find $1.2 trillion in savings over 10 years, and they could still find a way to reach that goal before March 1. That could be tough, and barring a political miracle, sequestration will likely take effect for a few weeks.

At the same time, sequestration only looms as a possibility because Congress and the president wrote it into a law -- and they could just as easily rewrite it. They've already extended their deadline twice, and, unlikely as it may be, there's no reason why Congress and Obama couldn't simply write a new law that makes "sequestration" go away. If sequestration is an artificial crisis, it can be artificially undone.

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