Sequestration: What in the World Is It?
Business + Economy

Sequestration: What in the World Is It?

iStockphoto/The Fiscal Times

Sequestration: It’s a complicated word that many assume applies only to military spending. But that’s probably because the looming cuts to defense have gotten the most attention – up until now.  

Sequestration – or the “sequester cuts” – refers to a series of across-the-board federal budget reductions that will be split evenly between defense and domestic discretionary spending beginning March 1, 2013.

The cuts are the result of a failed effort between President Obama and the House of Representatives in 2011 to reduce this country’s long-term deficit spending in exchange for raising the level of the debt ceiling. The $1.2 trillion in automatic cuts, scheduled to begin this year, are divided evenly over ten years.

As agreed to by Obama and congressional leaders, sequestration was originally due to take effect on January 1 of this year – which is why there was so much “panic” about the whole idea as we closed out 2012. But as part of the legislation approved on New Year’s Day to avert the fiscal cliff, the White House and congressional leaders postponed the cuts until March 1, 2013.  

The cuts this year have been reduced from the original $109 billion to $85.3 billion to reflect the shorter time frame. The new defense cuts will amount to $43 billion, or an average of 7.3 percent this year, while domestic cuts will also be about $43 billion, or an average of 5.1 percent. 

The legal term “sequester” means the act of seizing valuable property and locking it away for safekeeping. But ever since the Gramm-Rudman-Hollings Deficit Reduction Act (GRHDRA) of 1985, the term as it relates to the federal budget has involved a “seizure” or sequestration of funding.  

Certain areas of government spending are off-limits to sequestration – including war spending. In addition, some domestic spending programs – including Social Security, Medicare, Medicaid, veterans’ benefits, food stamps and federal retirement programs – are also exempt.

So what can be touched? The adminstrative costs within federal agencies. Spending on programs for economic development. Vocational education. Employment training. Aid to the states. Research grants. Head Start.

The Department of Health and Human Services, for example, would be forced to absorb cuts of about $6.6 billion – while Homeland Security, Education and HUD would each be cut by about $3.7 billion.

This past Tuesday, President Obama called on Congress to pass a new package of limited spending cuts and tax increases to temporarily block the sequestration cuts from taking effect beginning March 1. But Republicans are opposed to raising additional tax revenue as part of any deal – and many conservatives who once said “no” to sequestration now say the easiest way to lock in substantial deficit reduction is to allow the automatic cuts in defense and non-defense programs to occur. 

Rep. Tom Cole, R-Oklahoma, for example, has said that GOP lawmakers would rather have the spending reductions than none at all. “There’s clearly elements we don’t like in the sequester, but the majority of our conference is quite prepared to go there if they don’t see something else,” Cole said, according to The Hill. “They want to do something dramatic.” 

On the other hand, “Congress needs to show some courage and brains and cancel sequestration,” J. David Cox Sr., national president of the American Federation of Government Employees, said last week.

To those who ask, “Why are we faced with sequestration now?” – the answer goes back to the congressional Joint Deficit Reduction Committee, otherwise known as the “Super Committee.” Co-chaired by Rep. Jeb Hensarling (R-TX) and Sen. Patty Murray (D-Wash.), the bipartisan committee of 12 was tasked with identifying carefully targeted spending cuts to pare down the rapidly growing federal deficit, but was unable to complete the job

Ironically, sequestration as a budget-busting enforcement mechanism was once thought to be so severe and blunt that it would never actually happen because no one in Washington would let it happen. Now it’s inching ever closer, even though budget experts have long warned that sequestration may set back economic growth.