Sequestration: DC's Weird Idea of Cuts

Feb. 18, 2013 — -- It's the dirtiest word in Washington right now: "sequester."

Formerly wrapped up in the "fiscal cliff" that was poised to wreck America's economy at the end of the year, the dreaded "sequester" is the spending half of that taxes-and-spending equation: It amounts to across-the-board budget cuts that will strike in March barring an agreement on deficit reduction.

The "sequester" is yet another deadline in a long line of fiscal-policy stalemates that have hounded the U.S. political system in the last two years. Because its origins were esoteric and convoluted, the "sequester" is shrouded in a degree of Washington policy mystique.

Hopefully a few answers can de-mystify it:

Read more: Sequester Siren! Meat in Danger?

What Is the Sequester?

Across-the-board budget cuts. On March 1, barring agreement on a broader deficit-reduction package, many federal programs will see across-the board automatic spending reductions take effect over the next 10 years.

The 10-year cuts will total $1.2 trillion, and they'll apply equally to defense and non-defense spending.

Read more: Boehner Not Budging on Sequester Until Senate Acts

Where Did It Come From?

From Washington's ineptitude at decision-making. Budget sequestration was brought into existence as an enforcement mechanism to make Congress and the White House agree to a package that would reduce the deficit. They still haven't done it.

In August 2011, with the nation's debt-limit deadline fast approaching, and with the threat of credit downgrades and government shutdowns looming over partisan negotiations in Washington, congressional Republicans refused to up the federal debt ceiling without accompanying spending cuts to shrink the deficit.

When talks broke down, sides agreed on the Budget Control Act -- a measure that applied discretionary spending caps and also included a mandate for more deficit-reduction in the future. It created the congressional budget "supercommittee" -- the panel of representatives and senators that were given another deadline to propose a package of spending cuts and/or tax hikes to lower the deficit.

Sequestration was agreed upon as the unpleasant consequence of failure: If the committee couldn't recommend a package by late 2011, and if Congress couldn't pass it in January 2012, $1.2 trillion in automatic cuts would be triggered.

The ploy didn't work.

Read more: AG, FBI Warn Against Across-the-Board Spending Cuts

A Rolling Deadline

Sequestration should have happened by now, but Congress and President Obama gave themselves an extension.

When Congress missed its Jan. 15, 2012 deadline to approve a broad package of spending cuts, sequestration was triggered, slated to begin Jan. 2, 2013. But both sides agreed they could have until the cuts were actually supposed to take effect, giving themselves another (election) year to negotiate.

On the day of the deadline, however, Washington granted itself another extension. Along with their agreement to extend most of the Bush-era tax rates, Obama and Congress approved legislation to extend the sequestration deadline to March 1.

What Will Be Cut?

Federal agencies and their budgets, including defense spending. Both mandatory and discretionary spending will be cut.

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.