Comprehensive primer on the sequester

At the end of the month, the dreaded sequester is set to take effect. Hands up if you know what exactly that means – and be honest. Don’t worry, we’re here to set you straight. Read on for answers to some of the most-asked questions about the impending cuts.

What is the sequester?

The sequester is a group of cuts to federal spending set to take effect Friday, barring further congressional action.

Where did it come from?

The sequester 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 (a.k.a. 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 the deal by Dec. 23, 2011, the sequester 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 sequester cuts would take effect at the beginning of 2013. Together with the expiration of the George W. 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 sequester was delayed to March 1.

What gets cut?

The 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 such as Social Security or Medicaid) and discretionary domestic spending. Only a few mandatory programs, such as 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, such as Medicaid and Social Security, and in particular low-income programs including Temporary Assistance for Needy Families (TANF, or welfare) and the Supplemental Nutritional Assistance Program (SNAP, or food stamps) were exempt from the sequester.

How much gets cut?

The 2013 sequester includes:

$42.7 billion in defense cuts (a 7.9 percent cut).

$28.7 billion in domestic discretionary cuts (a 5.3 percent cut).

$9.9 billion in Medicare cuts (a 2 percent cut).

$4 billion in other mandatory cuts (a 5.8 percent cut to nondefense programs, and a 7.8 percent cut to mandatory defense programs).

That makes for a total of $85.4 billion in cuts. (Note: Numbers are updated to the latest Congressional Budget Office figures; thanks to Center for Budget and Policy Priorities for noting the difference from initial Office of Management and Budget numbers.)

More will be cut in 2014 and later; from 2014 to 2021, the sequester will cut $87 billion to $92 billion from the discretionary budget every year, and $109 billion total each year.

Will any programs actually end?

Nope. The sequester cuts discretionary spending across the board by 9.4 percent for defense and 8.2 percent for everything else. 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 (note that these are rough estimates based on numbers put out by OMB before the fiscal cliff deal):

Aircraft purchases by the Air Force and Navy are cut by $3.5 billion.

Military operations across the services are cut by about $13.5 billion.

Military research is cut by $6.3 billion.

The National Institutes of Health get cut by $1.6 billion.

The Centers for Disease Control and Prevention are cut by about $323 million.

Border security is cut by about $581 million.

Immigration enforcement is cut by about $323 million.

Airport security is cut by about $323 million.

Head Start gets cut by $406 million, kicking 70,000 children out of the program.

FEMA’s disaster relief budget is cut by $375 million.

Public housing support is cut by about $1.94 billion.

The Food and Drug Administration is cut by $206 million.

NASA gets cut by $970 million.

Special education is cut by $840 million.

The Energy Department’s program for securing our nukes is cut by $650 million.

The National Science Foundation gets cut by about $388 million.

The FBI gets cut by $480 million.

The federal prison system gets cut by $355 million.

State Department diplomatic functions are cut by $650 million.

Global health programs are cut by $433 million; the Millennium Challenge sees a $46 million cut and USAID a cut of about $291 million.

The Nuclear Regulatory Commission is cut by $55 million.

The SEC is cut by $75.6 million.

The U.S. Holocaust Memorial Museum is cut by $2.6 million.

The Library of Congress is cut by $31 million.

The Patent and Trademark office is cut by $156 million.

Will military personnel see their pay or benefits cut?

Pay: no. Benefits: yes. While military salaries are exempt from the sequester, benefits such as 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 sequester may not “reduce or have the effect of reducing the rate of pay an employee is entitled to” under the federal pay scale. However, the sequester is likely to cause furloughs, which amount to unpaid time off or, basically, a pay cut.

How many people will lose jobs?

Depends whom you ask. Stephen Fuller, an economist at George Mason University, puts the number at 2.14 million. That includes the direct loss of 325,693 jobs from defense cuts (including 48,147 civilian employees at Defense) and 420,529 jobs from nondefense cuts (including 229,116 federal workers – the rest, by and large, are contractors). The rest of the job losses are indirect, resulting in a 1.5-point increase in the unemployment rate. However, Fuller’s estimates predate the delay in the sequester passed in December, and other analysts are more measured. Macroeconomic Advisers estimates the sequester will add only 0.25 points to the unemployment rate, a sixth of the impact Fuller predicts.

What will this do to the economy?

The CBO estimates that combined federal fiscal tightening in 2013 will knock 1.5 points off gross domestic product growth for the year. Of that, about five-eighths of a percent (or 0.565 percent) is due to the sequester. Macroeconomic Advisers similarly estimates that the sequester will shave 0.6 points from the year’s growth rate. Fuller’s estimates are more dramatic, putting the loss of 2013 GDP at $215 billion, reducing the GDP growth rate by two-thirds. However, Fuller’s estimates precede the shrinking of the sequester.

What does President Barack Obama want to do?

He has been less specific than his colleagues in Congress on how he wants to see the sequester replaced, but he has suggested that, in lieu of a bigger deficit reduction deal, he wants to see the 2013 sequester replaced with a package of tax increases (including loophole closures and increases on the wealthy) and spending cuts.

What do Democrats in Congress want to do?

House Democrats, led by Budget Committee ranking member Chris Van Hollen of Maryland, proposed replacing the $85 billion in 2013 sequester cuts with a mix of tax increases – including a “Buffett rule” minimum tax on income above $1 million and the 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 Chairman Patty Murray of Washington, 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.

Both the Senate and House Democrats’ plans allow the sequester to take effect at the beginning of 2014.

What do Republicans in Congress want to do?

As part of Speaker 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 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.

What do outside groups want to do?

Just about every interest group wants to stop the sequester, and just about none wants to see it take effect. Aerospace and defense companies, along with universities reliant on defense research funding, have launched Second to None, a coalition battling the defense cuts. A group of almost 3,000 organizations, including the NAACP, AARP, Children’s Defense Fund, the Wilderness Society, Greenpeace, Human Rights Campaign, the Innocence Project and many more, have warned about the impact of the nondefense discretionary cuts in the sequester. Physicians and medical research organizations, including the American Medical Association, the American Pediatrics Association and others, are resisting the discretionary cuts to medical research, and in particular the National Institutes of Health. Liberal groups including MoveOn and the Working Families Party are also getting in on the action.

The tea party-affiliated FreedomWorks has put out a letter calling for the Affordable Care Act to be defunded to match the expected post-sequester spending level without letting the sequester take effect.

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