The term sequester or sequestration has been thrown around in speeches, articles, and testimonies by politicians, congressional staff, researchers, analysts, and the media. Yet many Americans get that blank look in their eyes when you ask them to explain the term.
“Washington has been feeding the public a steady diet of news headlines about the doom and gloom surrounding fiscal issues for some time. As policymakers lurch from one fiscal crisis to another, it perhaps should not be surprising that voters are having a hard time keeping track of it all,” an article on The Hill website states. The Hill is a congressional daily newspaper, which is published when Congress is in session.
According to poll results published Feb. 11 on The Hill website, 25 percent of polled voters had no clue what was meant by the term sequester. Close to 40 percent came up with an explanation that was plain wrong. A mere 36 percent could explain the term sequester correctly.
In plain words, the About.com website defines sequestration as “the employment of automatic, across-the-board spending cuts in the face of annual budget deficits.”
Spending Cuts Impact
A majority of survey respondents indicated “the budget sequester would have a major effect on the economy as well as on the U.S. military. And by more than three-to-one (62%–18%), the public sees the impact on the economy as mostly negative rather than mostly positive,” according to the results of a national survey published Feb. 25 on the PEW Research Center website.
Despite the pessimism, people have become numb concerning the sequestration, with only 25 percent of those surveyed taking an active interest in what is going on in Washington. On the other hand, when the fiscal cliff was an issue, about 40 percent of those polled were actively following what was happening in Washington one month before the cutoff date.
Less than one-third of individuals polled are greatly concerned when it comes to their personal finances, as the spending cuts affect government agencies.
“Those in households earning less than $30,000 a year are especially likely to say automatic federal spending cuts would have a major effect on their personal finances. Nearly four-in-ten (39%) say this, compared with 27% of those earning $30,000–$74,999 and just 21% of those making over $75,000 a year,” according to the PEW survey results.
Sequestration at a Glance
“The mechanism of sequestration was originally conceived of more than a quarter century ago. It was designed to force Congress to deal with rising federal debt and budget deficits and, should that fail, to automatically cut funding to government agencies and programs,” a Feb. 27 article on the Bipartisan Policy Center (BPC) website states.
The sequester first appeared in the Balanced Budget and Emergency Deficit Control Act of 1985, also called the Gramm-Rudman-Hollings Act. It has been executed only once (in 1986) since its enactment, until this year.
In 2011, the U.S. Congress passed the Budget Control Act of 2011 (BCA), which “provided for an increase in the statutory limit on the public debt in conjunction with a variety of measures to reduce the budget deficit,” according to a Nov. 9, 2012, publication by the Congressional Research Service (CRS).
In the minds of various analysts, researchers, and economists, the BCA is vague concerning the application of sequestration. But, according to the BPC article, the BCA states that the authority for the sequester be given to the U.S. Office of Management and Budget (OMB).
Also, the act required the formation of the Joint Select Committee on Deficit Reduction, better known under the name Super Committee. This committee was tasked to develop a plan that would allow the United States to reduce its deficit by equal or more than $1.2 trillion over the following nine years. The act required that if the undertaking failed, spending cuts would become mandatory on Jan. 2, 2013. However, the deadline was postponed to March 1.
“Because the committee did not report out recommendations, the BCA’s automatic spending reduction process was triggered. This process … would reduce federal outlays over the next decade unless legislation is enacted to prevent it,” the CRS publication states.
Eyeballing Some of the Nitty-Gritty
“To account for the fact that part of the $1.2 trillion will come from debt service savings, the BCA instructs OMB to reduce the size of the sequester by 18 percent, to $984 billion,” which will be evenly divided over the sequester years. according to a May 2012 BPC article.
There are a number of reductions to the $1.2 trillion. For one, timing differences that concern project fund allocations could result in the deficit reduction still occurring, but beyond the 2013 to 2021 sequester period. In short, if a contract calls for a 12-year construction period and the project is cancelled, then the saved amount will be allocated over more than the 9-year sequester debt reduction period.
Additionally, according to an August 10, 2012, BPC article, “some of the spending cuts to non-exempt mandatory programs will indirectly produce additional outlays.” For example, reduction in the Medicare program will also result in reduction of payment by future beneficiaries, “because those premiums are calculated as a percentage of the total cost of Medicare,” the BPC article states.
The sequestration would have different impact on different government offices, their programs, and their personnel. “Perhaps the greatest uncertainty exists with respect to how sequestration will impact the federal work-force,” according to a June 18, 2012, report on the Center for American Progress (CAP) website.
A problem may arise when it comes to addressing sequestration in regard to contracts signed with the private sector for products and services. Across-the-board cuts may not be possible, and each contract has to be reviewed individually, creating another cost to the agency.
“Budget officers would be obliged to examine each contract and attempt to make reductions in ways that inflict the least harm on the taxpayer or the ability of the government to buy important services or products in the future. As a result, predicting the impact of sequestration on contracts is highly complex and uncertain,” the CAP report states.
Dealing With 2013 Differently
In 2013, “there are no new discretionary caps. Rather, the cuts will be made regardless of Congress’ appropriation levels,” according to a BPC Fact Sheet.
Automatic spending cuts for 2013 would be about $85 billion, according to a March 1 article on The Hill website.
A June 18, 2012, article on the CAP website, predicts that during fiscal year 2013, spending cuts will range between 8.5 percent and 10 percent.
As the fiscal year for government agencies begins on Oct. 1 of each year and ends on Sept. 30 of the following year, the sequestration for 2013 applies to just a 9-month period.
“On a percentage basis the cuts would have to be about a third larger than the 8.5 percent to 10 percent required for the year as a whole. Such programs would face cuts of between 11.3 percent and 13.3 percent during that nine-month period,” suggests the CAP article.
A Feb. 28 article on the Money Morning website states that the Democrats and Republicans have no argument concerning the $85 billion spending cuts in 2013. However, on closer look, only $44 billon of spending cuts can be found because “the other $41 billion is money that is ‘authorized’ to be spent in later years.”
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