Everything you need to know about budget 'sequestration' – except the consequences

The White House has reported on the $1.2 trillion in automatic budget cuts that are part of last year's debt ceiling deal. But how the cuts will impact individual programs remains unclear.

Robert Sullivan/REUTERS
A Stop Sequestration button that was given to Aerospace employees from Pratt & Whitney and Sikorsky is seen at a rally to call to attention upcoming defense budget cuts, in West Palm Beach, Florida August 8, 2012.

You can now go line by line in the federal budget and see just how deep the spending cuts slated for January will go thanks to a White House report released Friday on the impact of what’s known as “sequestration.”

What still isn’t there, however, is how the Selective Service (down 9.4 percent, or $2 million), managers for federal emergency food and shelter funding (down 8.2 percent, or $10 million) or operations and maintenance at the Marine Corps (down 9.4 percent, or $854 million) will actually cope with the reductions. 
How many fewer tents will the Federal Emergency Management Agency buy? How will the Marine Corps maintain its combat readiness? That’s all still unclear. 
“There will be some unintended consequences sooner or later,” says Pete Davis of Davis Capital Investment Ideas. “They’ve taken 8.2 percent out of embassy security which doesn’t seem like such a great idea right now…. What are you going to do if you’re building a ship and you’re going to take 9.4 percent out of it? It’s not like you can just buy 90 percent of a ship.”

RECOMMENDED: 'Fiscal cliff'? 'Sequester'? Your guide to Congress's code language.
Sequestration was the result of last summer’s debt ceiling deal, which cut $1 trillion in government spending over the next decade outright and then put responsibility for finding another $1.2 trillion on Congress.

Because Congress failed to agree on the mixture of lower spending and higher taxes to hit that figure, a mechanism in the debt ceiling-raising legislation causes automatic spending decreases to hit the $1.2 trillion figure: about $109 billion in lower government spending every year for the next decade.
The report itself comes about a week after the statutory deadline from the Sequestration Transparency Act, one of the last pieces of legislation Congress passed before adjourning for its August break. That legislation ordered the administration to create a report detailing the outlines of the sequester. 
Overall, the White House’s Office of Management and Budget outlined the $109 billion in spending cuts for 2013 as follows:
• Hits to defense programs of either 9.4 percent or 10 percent, depending on how they receive their appropriations from Congress ($55 billion).

• Payments to Medicare providers will be reduced by 2 percent ($11 billion).

• Cuts to non-defense spending (like elementary and secondary education or rehabilitation services and disability research) will be cut at either 8.2 percent or 7.6 percent (totaling $43 billion).

Before getting into the nitty-gritty of which budget lines see what reductions, the document does not carry the down-the-middle, dispassionate tone presented by the nonpartisan Congressional Budget Office, say, or the Joint Committee on Taxation.

Instead, it frequently rips Republican plans to turn off the sequester at various points as “unbalanced,” “irresponsible,” unrealistic, unfair, and unreasonable. 
That tone reprised the same debate that the two parties have been having on Capitol Hill for months. Republicans on Capitol Hill released their own barrage in which they called the President’s leadership into question and criticized the report’s lack of granular description of exactly how the administration would cope with sequestration should it occur.
“Although the sequestration report lacks detail, it makes glaringly clear that those programs most closely related to combat readiness of the force will be severely cut,” said Senate minority leader Mitch McConnell (R) of Kentucky in a statement. “And while the report claims that the President has offered ‘balanced and comprehensive deficit reduction’ solutions, his plan was so unserious that it was rejected by every single member of Congress.”
The chairman of the House Republican conference, Rep. Jeb Hensarling (R) of Texas, concurred.
“When it comes to averting this looming national defense crisis, President Obama has been AWOL – absent without leadership,” Representative Hensarling said in a statement. “Even though the sequester was originally concocted by his administration, the president could not even manage to meet last week’s legal deadline for explaining how he plans to implement these cuts, in violation of the law he signed just last month.”
Democrats, on the other hand, again contended that the law which both parties profess to hate only lives on because the GOP will not bend on raising taxes.
“It’s the American people who will pay the price for Republican intransigence,” said Rep. Chris Van Hollen (D) of Maryland, the ranking member of the House Budget Committee, in a statement. “It’s time to stop the political games and start working together to prevent the sequester, protect the economic recovery, and get our fiscal house in order.”
Outside the bounds of the report, Mr. Davis of Capital Investment Ideas points out, there are plenty of questions. What, exactly, will the funding levels for these programs be in 2013? That will be sorted out soon by a resolution funding the government through March, but what happens after that? Because the sequester doesn’t allow a reduction in personnel, what happens to budget lines that are 85 percent salary cost, Davis wonders. 
Because the sequester begins three months into the fiscal year (which begins Oct. 1), departments will have a higher level of funding authorized at the beginning of the year – and could keep spending at that level expecting the sequester to be turned off even if it does go into effect Jan. 1, Davis says. If that happens, these departments could be forced to “double and triple” their efforts to reduce spending toward the end of the year to get in line with the annual budget allotments. 
And so in many ways, the report leaves the discussion much as it found it: Everybody hates the sequester but nobody will do anything to make it go away.
“No amount of planning can mitigate the significant impact of the sequestration,” the report reads. “The destructive across-the-board cuts required by the sequestration are not a substitute for a responsible deficit reduction plan.”
And that means continued suffering for hiring and investment in both the public and private sectors as everyone continues to wonder how Washington will clean up its fiscal mess. 
“To have this much self-imposed uncertainty on business is just senseless,” Davis says. “Let alone this much uncertainty on the government.”

RECOMMENDED: 'Fiscal cliff'? 'Sequester'? Your guide to Congress's code language.

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