Here’s what sequestration will look like in 2014 if the budget talks fail

December 9, 2013

The negotiators hashing out a budget deal in Congress right now have a fairly modest goal: They'd like to avert at least some of the automatic budget cuts that are scheduled to take effect in 2014.


It's not terribly surprising that Democrats are pushing to boost spending levels next year, both to protect various domestic programs and avoid more fiscal drag on the U.S. economy. It's a bit more surprising that some Republicans are also in favor of fending off these looming cuts.

So what are these cuts? And why are lawmakers in both parties trying to prevent them?

What sequestration does in 2014: The cuts in question are known as "sequestration." They were first set in motion back in the 2011 Budget Control Act, and they essentially set stringent overall spending limits on discretionary spending every year.

"Discretionary spending" is basically anything that Congress funds each year through the appropriations process. It doesn't include Medicare, Medicaid or Social Security (those are "mandatory" programs). But it does include virtually everything else: defense programs and the military, Veterans Affairs, scientific research, housing, the FBI and environmental enforcement, among other federal programs.

In 2013, the federal government spent $986 billion on discretionary programs, all told. That's scheduled to shrink to $967 billion in 2014 under current law. Virtually all of the additional cuts next year will come out of the military and other defense programs. (Note: These numbers don't include "emergency" spending on disaster relief or overseas operations.)

Here's one way to look at those cuts: Discretionary spending in 2014 is set to be roughly 17 percent lower than it was in 2010, after adjusting for inflation. Domestic programs have been hit harder than defense, but both categories are facing a squeeze:

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Why lawmakers hate sequestration: In the abstract, many conservatives favor those lower spending levels. But Republicans were having trouble putting those cuts into practice when it came time to slice up specific programs.

Earlier this summer, GOP appropriators in the House drafted legislation that would have cut housing and transportation programs by $4 billion in 2014 to meet the broader overall spending cap. That bill, with its concrete cuts, couldn't even attract enough votes among Republicans, and House Speaker John Boehner (R-Ohio) had to pull it from the floor.

"Several months ago we were dealing with [sequestration] in the abstract," explained a Republican aide at the time. "But now that we’re moving into it, people are realizing that it’s not the best way to do things."

On top of that, the Pentagon will have to start making significant cuts this year if sequestration stands. Under current law, the defense budget is set to fall by $20 billion this year, and the Pentagon can no longer juggle around money to fend off layoffs. Secretary of Defense Chuck Hagel has told lawmakers that the cuts could eventually create a "readiness crisis" for the military.

Lately, some Republicans have been talking about those defense cuts in apocalyptic terms. "You'd better hope we never have a war again," said Rep. Howard P. "Buck" McKeon (R-Calif.), chairman of the House Armed Services Committee, who has asked Congress to find ways to fend off sequestration.

How Congress wants to fend off sequestration: This explains why the current budget negotiations, led by Rep. Paul Ryan (R-Wis.) and Sen. Patty Murray (D-Wash.) are focused on loosening those constraints a bit. There are lawmakers in both parties who are okay with slightly higher spending in the short term.

The deal under discussion would raise discretionary spending in 2014 from $967 billion to around $1.015 trillion. (Spending would then stay at the same level for 2015.) The extra $30 to $40 billion or so in spending next year would be split evenly between defense and non-defense programs.

That's not enough to fend off all of the pain from sequestration — less than half of the $109 billion in sequestration cuts next year would get averted in any deal. But it would ease some of the pressure.

"We can’t say it will fix every problem caused by sequestration, but it will provide some flexibility," a senior Democratic aide told me. "Some of the people who would have been furloughed won't be furloughed. Some of the investments that wouldn't have been made will now be made."

To offset the extra spending for the next two years, budget negotiators are looking to save at least $65 billion elsewhere in the budget. Possible options include cuts to federal worker pensions and higher security fees for the nation’s airline passengers, though that's still uncertain. You can read more about the outlines of the budget deal here.

The spending increase in context: It's worth noting that even if Republicans relent a bit on discretionary spending for next year, they're winning the broader battle here.

If discretionary spending for 2014 reaches $1 trillion or so, that's still lower than envisioned by either President Obama's budget or the Senate Democratic budget. In fact, it's lower than what Ryan envisioned back in his 2010 budget:

That's one reason why the federal budget deficit has shrunk considerably over the past year, from 6.8 percent of GDP in 2012 to 4.3 percent in 2013. And it's one reason why the Congressional Budget Office expects the deficit to keep shrinking for the next two years.

Further reading:

-- Congress is trying to avoid another shutdown. Here’s where the talks stand.

-- Everything you need to know about sequestration.

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