Economy / Fiscal policy / Politics

What is Sequestration?

In the spring of 2011, a newly-elected Republican Congress claimed a mandate from the American people to cut spending at any cost.  Twice – in February and April – Congress came within hours of a government shutdown before short-term spending measures (Continuing Resolutions) were passed, cutting spending in each case.

As spring moved to summer, it became clear that a larger fight was brewing, one over the debt limit.  Some freshman Republican members campaigned on a promise not to raise the debt ceiling, which is the legal limit on borrowing by the federal government.  Many economists, in a letter organized by two liberal think-tanks, warned that failure to raise the debt ceiling, essentially risking the “full faith and credit of the United States” for political purposes, would “have a substantial negative impact on economic growth at a time when the economy looks a bit shaky.  In a worst case, it could push the United States back into recession.”

But Republicans were determined to attach significant budget cuts, with no tax increases, to any deal to raise the debt limit.  Various negotiations ensued, including ones led by Vice President Biden, which involved $1-2 trillion in cuts, and President Obama, which involved $4 trillion in cuts.  Both failed after each party’s base revolted against the leaked details of revenue increases and entitlement reform.

On July 31, the deadline instituted by the Treasury Department, Congress and the White House reached a deal which raised the debt ceiling by $2.4 trillion, imposed caps on discretionary spending that, according to the Center on Budget and Policy Priorities, will “reduce their funding by more than $1 trillion,” and mandated another $1.2 trillion in cuts. The cuts, however, were not determined at the time; a bipartisan Congressional commission (“super committee”), which included Republicans and Democrats from the House and the Senate, was created to determine which programs, department, and expenditures were to be cut with a deadline of the last week of November.

Even with this agreement and the prevention of default, S&P, one of the three ratings agencies, downgraded the U.S. credit rating for the first time in American history citing “political brinksmanship.”

If the committee of six Democrats and six Republicans failed to reach a deal (and fail they did), Congress instituted a sequester – mandatory spending cuts, split evenly between Defense spending (a Republican sacred cow) and non-Defense spending, including entitlements (a Democratic sacred cow).  The exact breakdown can be seen here.

When the super committee failed, the sequester was triggered; the $1.2 trillion in mandatory cuts are scheduled to go into effect on January 1, 2012, the same day the Bush Tax Cuts are scheduled to expire and near the estimated date of when the debt ceiling must be raised again.

 

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3 thoughts on “What is Sequestration?

  1. One main problem is that there is no personal benefit to a politician if he cuts spending and “takes away” someone’s government assistance, or supposed sense of security. There is enough room in our budget for massive cuts without harm to the economy, poor, or defense, but if the electorate rewards politicians who hand out favors, it will be impossible to make significant cuts.

  2. Pingback: The Details behind President Obama’s Universal Preschool Program | Policy Interns

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