What is sequestration?
Where did it come from?
The supercommittee sequestration was originally passed as part of the Budget Control Act of 2011 (BCA), better known as the debt ceiling compromise.
It was intended to serve as incentive for the Joint Select Committee on Deficit Reduction (aka the "Supercommittee") to come to a deal to cut $1.5 trillion over 10 years. If the committee had done so, and Congress had passed it by Dec. 23, 2011, then the sequestration would have been averted.
Obviously, that didn't happen.
Wasn't this supposed to happen at New Year's?
Yes. The Budget Control Act originally stipulated that the supercommittee sequestration cuts would take effect at the beginning of 2013. Together with the expiration of the Bush tax cuts and the payroll tax cut, this would have amounted to a giant fiscal contraction, almost certainly throwing the United States into another recession. The combination of policies came to be known as "the fiscal cliff."
A deal was reached to avert the cliff, in which the sequestration was delayed to March 1.
What gets cut?
The supercommittee sequestration cuts are evenly split between domestic and defense programs, with half affecting defense discretionary spending (weapons purchases, base operations, construction work, etc.) and the rest affecting both mandatory (which generally means regular payouts like Social Security or Medicaid) and discretionary domestic spending.
Only a few mandatory programs, like the unemployment trust fund and, most notably, Medicare (more specifically its provider payments) are affected. The bulk of cuts are borne by discretionary spending for either defense or domestic functions.
What is exempted?
Most mandatory programs, like Medicaid and Social Security, and in particular low-income programs like Temporary Assistance for Needy Families (TANF, or welfare) and the Supplemental Nutritional Assistance Program (SNAP, or food stamps) were exempt from supercommittee sequestration. However some low-income programs, most notably Section 8 housing vouchers, aid for Women, Infants, and Children (WIC) and the Low Income Home Energy Assistance Program (LIHEAP), are subject to cuts.
How much gets cut?
• $42.7 billion in defense cuts (a 7.7 percent cut).
• $26.1 billion in domestic discretionary cuts (a 5.1 percent cut).
• $11.1 billion in Medicare cuts (a 2 percent cut).
• $5.4 billion in other mandatory cuts (a 5.2 percent cut).
That makes for a total of $85.3 billion in cuts.
Is the supercommittee sequestration the only set of across-the-board cuts?
Nope! In addition to the "supercommittee sequestration" described above, there's the "cap sequestration." The Budget Control Act of 2011 set caps on discretionary spending going forward, which took effect regardless of the supercommittee's outcome. If the caps are exceeded, spending is cut across the board in a manner very similar to the supercommittee sequestration process, but the intention was for policymakers to keep spending under the caps on their own, preventing across-the-board cuts.
In fiscal year 2013, that's what happened: a full-year appropriations bill was approved that kept spending below the cap levels, so the cap sequestration did not take effect.
Is the 2014 sequestration like the one this past year?
Nope! In 2014 through 2021, the "supercommittee sequestration" operates on discretionary sspending by lowering the BCA's budget caps below where they'd be if the supercommittee had reached a deal. The distinction between "security" and "nonsecurity" spending is also junked in favor of a defense/non-defense distinction, with half of cuts going to each category. For Medicare and other non-exempt mandatory spending, the supercommittee sequestration works the same as it did in fiscal year 2013.
From 2014 to 2021, the caps — including the supercommittee-related reductions in cap levels — will cut $109.3 billion annually. Whether that is achieved by across-the-board reductions or targeted cuts is up to Congress.
Does the cap sequestration exclude low-income programs too?
For the most part, yes. With a handful of exceptions — to whit special health programs, health centers and the Indian Health Service and administrative expenses of Supplemental Security Income (SSI), which are subject to caps but not the supercommittee sequestration — the cap sequestration exempts all the same categories as the supercommittee sequestration. The cap sequestration's exemption rules apply for all cuts from 2014 to 2021, as both sequestrations are implemented through caps during that period.
Will any programs actually end?
Nope. As we mentioned, the sequestration cuts discretionary spending across-the-board by $109.3 billion a year from 2014-2021 and $85.3 billion in 2013. But no programs are actually eliminated. The effect is to reduce the scale and scope of existing programs rather than to zero out any of them.
What notable programs get cut?
Here are just a few, with the amount they got cut by in fiscal year 2013 (which concluded on September 30, 2013).
• Aircraft purchases by the Army, Air Force and Navy are cut by $4 billion.
• Military operations across the services (including reserves and National Guard) are cut by about $17.1 billion.
• Military research is cut by $6.1 billion.
• The National Institutes of Health get cut by $1.6 billion.
• The Centers for Disease Control and Prevention are cut by about $303 million.
• Border security is cut by about $595 million.
• Immigration enforcement is cut by about $295 million.
• Airport security is cut by about $276 million.
• FEMA's disaster relief budget is cut by $928 million.
• Public housing support is cut by about $1.74 billion.
• The FDA is cut by $209 million.
• NASA gets cut by $896 million.
• Special education is cut by $827 million.
• The Energy Department's programs for securing our nukes are cut by $903 million.
• The National Science Foundation gets cut by about $361 million.
• The FBI gets cut by $556 million.
• The federal prison system gets cut by $339 million.
• State Department diplomatic functions are cut by $665 million.
• Global health programs are cut by $411 million; the Millenium Challenge Corp. sees a $45 million cut, and USAID a cut of about $289 million.
• The Nuclear Regulatory Commission is cut by $53 million.
• The SEC is cut by $74 million.
• The United States Holocaust Memorial Museum is cut by $3 million.
• The Library of Congress is cut by $30 million.
• The Patent and Trademark office is cut by $148 million.
You can find cuts for fiscal year 2014 (which would have started October 1 had a spending bill been passed) here.
Will military personnel see their pay or benefits cut?
Pay: no. Benefits: yes. While military salaries are exempt from sequestration, benefits like tuition assistance and the TRICARE program (which provides health care to personnel and their families, among others) are not.
Will federal employee salaries get cut?
Technically, no, but effectively, yes. The Congressional Research Service has written that a sequestration may not "reduce or have the effect of reducing the rate of pay an employee is entitled to" under their federal pay scale. However, the sequestration caused furloughs, which amount to unpaid time off, or, basically, a pay cut.
Will unemployment insurance be affected?
Partly yes, partly no. The regular unemployment insurance program, which is administered at the state level and paid for with state taxes on employers, is exempt. But Emergency Unemployment Compensation, an extension of the regular program enacted on June 30, 2008 to combat the recession, is not exempt, and is getting cut to the tune of $2.4 billion. The National Employment Law Project (NELP) has a good rundown of the state-by-state impact of those cuts here. As Catherine Rampell at the New York Times wrote, "[NELP] estimates that upward of 3.8 million unemployed workers will ultimately be affected by the cuts. The average weekly benefit check of $289 is being cut by $43, or about 15 percent."
What about our national parks?
What do the animals think about it?
Why don't you ask them?
How many people will lose their jobs?
Depends who you ask. Third Way estimates that about 1.8 million people will lose their jobs (see above). That's largely due to non-defense cuts:
About 1.5 million of the lost jobs are from the private sector:
And management/business and construction are the biggest categories seeing cuts:
Do some states see more cuts?
According to the OMB, yes. My colleagues Emily Chow, Kat Downs, Katie Park, Kenneth W. Smith Jr. and Tim Richardson put together a great interactive feature detailing the cuts to specific states, available here (you can see a snapshot above).
How much flexibility do agency heads have?
Not much. The sequester must be applied evenly to every "program, project, and activity." What is a program, or a project, or an activity, you ask? No one really knows, and OMB will have to define that. But the last time we did a sequester, an example of an activity was an individual buoy floating in the Chesapeke Bay. That buoy had to be cut by 5 percent. So no, administrators don't have much flexibility. Their hands are largely tied.
What will this do to the economy?
The CBO estimates that reversing the sequestration would add 0.7 points to GDP growth next year, and 0.6 points this year. Macroeconomic Advisers estimated that it would shave off 0.6 points from 2013's growth rate (see above chart). Fuller's estimates are more dramatic, putting the loss of 2013 GDP at $158.2 billion, reducing the growth rate of GDP by a full point. Third Way estimates that the sequestration will reduce GDP by $179.6 billion next year, leading to about a 1.1 point reduction in growth.
So it's fair to say that the sequestration cuts growth by somewhere between 0.6 and 1.1 points. Given that quarter 2 GDP growth was 2.5 percent, that amounts a cut in the rate of growth of 20-30 percent, which is hardly trivial.
What does Obama want to do about it?
President Obama wants to replace the sequestration with small cuts to discretionary spending, big cost reductions to Medicare and other health programs, using chained CPI for tax bracket adjustments and Social Security cost-of-living adjustments, and a new limit on tax expenditures for wealthy taxpayers.
What do Democrats in Congress want to do about it?
Before March 1, House Democrats, led by Budget Committee ranking member Chris Van Hollen, proposed replacing the $85 billion in 2013 sequester cuts with a mix of tax increases — including a "Buffett rule"-style minimum tax on income above $1 million and repeal of tax subsidies for oil companies — and spending cuts, notably including a reduction in farm subsidy payments to farmers and an increase in flood insurance premiums. Most of these policies would be spread over a decade rather than falling entirely in 2013.
Senate Democrats, led by Budget Committee Chairwoman Patty Murray, introduced the American Family Economic Protection Act, which replaces the 2013 sequester with $110 billion in spending cuts and tax increases, spread out over the course of a decade. Like the House plan, these policies include a "Buffett rule," the closure of tax loopholes for oil companies and cuts to farm subsidies. Additionally, the Senate bill cuts military spending in excess of the sequester's cuts.
Now that the sequestration is actually in effect, Congressional Democrats have become more accepting of its spending levels. The Senate continuing resolution that House Republicans rejected, leading to the government shutdown, spends $986 billion on discretionary programs. Post-sequestration discretionary spending in fiscal year 2014 would be about $966 billion. Especially given that President Obama's budget envisioned more like $1.2 trillion in discretionary spending, it's fair to say that Congressional Democrats have moved very far toward accepting sequestration levels.
That said, now that the government is shut down, Democrats are looking to boost discretionary spending above the $986 billion level.
What do Republicans in Congress want to do about it?
As part of John Boehner's "plan B" approach to avoiding the fiscal cliff (embarked upon after initial talks with the White House broke down), the House on Dec. 20, 2012, passed the Spending Reduction Act of 2012. The plan would have replaced the 2013 defense sequester with a variety of spending cuts, including cuts to food stamps, the Affordable Care Act and Dodd-Frank (including eliminating the "orderly liquidation authority" at the center of the legislation). It would have reduced the size of the domestic sequester in proportion to the $19 billion in discretionary savings included in the bill.
Republicans have conceded that they won't be able to pass the bill again, even in the House, but it provides a model for what Republicans want in a temporary replacement: no tax increases, no defense cuts and considerable domestic spending reductions. Indeed, as recently as August 30 Boehner was touting it and the very similar Sequester Replacement Reconciliation Act as sequestration replacements that the Senate and president should take up.
How does it relate to the shutdown?
Talks around the shutdown have increasingly centered on how to replace sequestration spending levels. Republicans are refusing to embrace any plan that raises discretionary spending above $988 billion this coming year, while Democrats are pushing for funding closer to pre-sequestration levels.
Note: some numbers above updated to latest CBO figures; thanks to Center for Budget and Policy Priorities for noting the difference from initial OMB numbers. This post has been updated throughout since initial posting.