The Sequester: Everything you need to know in one FAQ

Posted by Dylan Matthews on February 27, 2013 (by way of Ezra Klein's Wonk Blog)

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. Follow along 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 March 1, barring further congressional action.

Where did it come from?

President Obama signs the Budget Control Act into law. (Pete Souza/White House)

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 (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 sequester would have been averted.

Obviously, that didn’t happen.

Wasn’t this supposed to happen at New Year’s?

President Obama, Vice President Biden and congressional leaders working out the fiscal cliff deal, which would delay the sequester for two months. (Pete Souza/White House)

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 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 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?

Food stamps are exempt from the sequester. (For The Washington Post)

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 the sequester. However some low-income programs, most notably aid for Women, Infants, and Children (WIC) and the Low Income Home Energy Assistance Program (LIHEAP), are subject to cuts.

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 here updated to latest CBO figures; thanks to Center for Budget and Policy Priorities for noting the difference from initial OMB numbers.

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

Will any programs actually end?

No wasteful programs, like Alaska’s infamous Bridge to Nowhere (above), will be eliminated. Instead, almost every program will see an across-the-board cut. (Knik Arm Bridge and Toll Authority)

Nope. The sequester cuts discretionary spending across-the-board by $109.3 billion a year from 2014-2021 and $85.4 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?

The National Institutes of Health will see budget cuts in the billions if the sequester goes through. (J. Scott Applewhite/Associated Press)

Here are just a few. Update: 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 kids 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 FDA 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 Millenium Challenge Corp. 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 United States 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?

President Obama greets Australian troops, who are actually totally safe from the sequester. (Saul Loeb/AFP/Getty Images)

Pay: no. Benefits: yes. While military salaries are exempt from the sequester, 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?

The federal employees in this picture are going to be very disappointed by how much the sequester punishes the public. (Scott Olson/Getty Images)

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 their federal pay scale. However, the sequester is likely to cause furloughs, which amount to unpaid time off, or, basically, a pay cut.

Will unemployment insurance be affected?

“Near the relief office – I see my people” (AP)

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. In its state fact-sheets laying out the impact of the sequester, the White House estimated that payouts under EUC would drop by almost 11 percent, with the long-term unemployed affected by the cuts losing an average of $450.

What about our national parks?

Yup, they get cut too. The Department of Interior will have to furlough safety workers and put off summer hiring, resulting in less available camping sites and park trails. They will also shutter 128 of the country’s 561 national wildlife refuges (or 22.8 percent of the total) and discontinue visiting at all such refuges.

What do the animals think about it?

(Meghan Murphy/Smithsonian’s National Zoo)

Why don’t you ask them?

How many people will lose their jobs?

Depends who you ask. Stephen Fuller, an economist at the libertarian-minded George Mason University, puts the number at 2.14 million jobs lost. That includes the direct loss of 325,693 jobs from defense cuts (including 48,147 civilian employees at the DoD) and 420,529 jobs from non-defense cuts (including 229,116 federal workers — the rest, by and large, are contractors). The rest of the jobs 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.

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?

According to the OMB of 1991, buoys like this one are federal budget “activities.” (NOAA)

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 the combined federal fiscal tightening taking place in 2013 is knocking 1.5 points off GDP growth for the year. Of that, about ⁵/₈ of a percent (or 0.565%) is due to the sequester. Macroeconomic Advisers similarly estimates that the sequester will shave off 0.6 points from the year’s growth rate. George Mason economist Stephen Fuller’sestimates are more dramatic, putting the loss of 2013 GDP at $215 billion, reducing the growth rate of GDP by two thirds. However, Fuller’s estimates precede the shrinking of the sequester.

What does Obama want to do about it?

President Obama has been vague on how he’d replace the sequester. (Pablo Martinez Monsivais/AP)

President Obama 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 about it?

Sens. Patty Murray (seated, left) released Senate Democrats’ sequester plan. (Mike Theiler/Reuters)

House Democrats, led by Budget Committee ranking member Chris Van Hollen, proposedreplacing 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.

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 about it?

House Speaker John Boehner, right, has laid out the Republican position on replacing the sequester. (Joshua Roberts/Bloomberg)

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.

What do outside groups want to do about it?

The AARP (whose activists are pictured here) is among many groups resisting the sequester’s domestic cuts. (Melina Mara/The Washington Post)

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 three thousand organizations, including the NAACP, AARP, Children’s Defense Fund, the Wilderness Society, Greenpeace, Human Rights Campaign, the Innocence Project, and many, many more, have warned about the impact of the non-defense discretionary cuts in the sequester. Physicians and medical research organizations, including the American Medical Association, the American Pediatrics Association and many others, are resisting the discretionary cuts to medical research, and in particular the National Institutes of Health. Liberal groups like 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 ObamaCare to be defunded so as to match the expected post-sequester spending level without letting the sequester take effect.