Sequestration: It is here and now what?

On Mar. 1, President Obama was forced to sign a bill-enacting sequestration. The journey to the sequester spending cuts began in August 2011. 

A few months earlier, the United States had hit its borrowing limit.  If Congress did not approve an increase in the limit, the United States, cut off from additional borrowing, would be unable to pay interest on outstanding debt and would default.  The Republicans, who had taken control of the House earlier that year, threatened to vote against a debt ceiling increase unless the President accepted substantial cuts in government spending.  With the prospects of a default fast approaching, the parties agreed, among other items, to cut federal spending by $2.1 trillion over ten years beginning in 2013, according to FactCheck.org.

The parties could agree on only about $900 billion of actual spending cuts, however.  So they delegated the burden of allocating the additional $1.2 trillion of cuts to a newly-appointed “Super Committee” comprised of members from each party.  If the Super Committee could not reach agreement, then, under a process called “sequestration," the $1.2 trillion in cuts would be split evenly between defense and domestic programs and then allocated equally among projects within those two subsets. According to FactCheck.org, the parties agreed there would be no cuts in Social Security, Medicare, or Medicaid benefits. 

Jan. 1 was also the date the “Bush tax cuts” were set to expire. Economists became concerned that the combination of tax increases and spending cuts would push the United States over a “fiscal cliff” and back into recession. To avoid that result, the parties agreed on New Year’s Eve 2012 to defer the commencement of the sequestration cuts to Mar. 1, 2013. That deadline has now passed.

The across-the-board reduction in spending is not done simply at the agency level. Rather, it goes down to departments within each agency, and to spending accounts within those departments. Thus, the process robs an agency head of the ability to reallocate funds within the agency to retain funding for crucial programs.  For instance, the Secretary of Transportation cannot choose to move funds from a non-essential transportation function to keep TSA inspectors at airports.

There is hope that this problem, at least, will be resolved. According to the Congressional Budget Office (CBO) guidelines, Mar. 1 is not the final deadline Congress faces this year – or even this month. Congress has funded the federal government only through Mar. 27. If Congress does not appropriate additional amounts to run the government, then on Mar. 28 the federal government will shut down.

One would think the prospect of a government shutdown, which neither party wants, would be sufficient to force Congress to reach a deal. And such a compromise is likely, if not before Mar. 27, then shortly thereafter. But the path to a compromise will not be straight. The Republicans were stung by the fiscal cliff deal that raised taxes without reducing government spending, and are seeking additional spending cuts, this time in entitlement programs. The President has insisted that any deficit reduction plan be “balanced” to include new revenue (taxes) as well. The Republicans are steadfastly refusing to accept any tax changes, including the closing of what the President has asserted are tax “loopholes.”