Sequester 101: What happens on March 1?

Come March 1, the government cuts that nobody in Washington thinks are sensible are set to take hold.

Welcome to the ?sequester,? $85 billion in spending cuts poised to hit nearly every function of government and affect virtually all Americans.

The sequester is a complex concept with a tortuous history. Here are the basics on the automatic spending reductions set to come.

1. Where did the sequester come from?

This particular Washington doozy came out of another conflagration ? the debt-ceiling fight of 2011. Republicans, fresh off their electoral landslide in the 2010 midterms, demanded $1 in spending reductions for every $1 increase in the federal debt ceiling.

The messy negotiations that ensued buried the stock market and undermined consumer confidence, but policymakers did, in the end, hatch a plan to raise the US borrowing limit.

More specifically, Congress and President Obama agreed to the Budget Control Act (BCA), which matched some $2.4 trillion in debt-ceiling hikes with a similar amount of deficit reduction over the next decade.

Of the total deficit reduction, $900 billion was to be achieved through spending caps affecting all government functions outside of entitlement programs. For the rest, Congress was to explicitly decide on how to make the reductions through a bipartisan commission of lawmakers known colloquially as the ?supercommittee.? That group was supposed to cut $1.2 trillion but also had a goal of $1.5 trillion, with the possibility of going even higher.

Vested with immense power and special rules for moving its recommendations through Congress, the committee did what Congress does frequently of late: stalemated and failed.

That triggered the BCA?s backup plan: the sequester. This is $1.2 trillion in automatic, across-the-board reductions in nearly all government operations over the next decade.

These cuts were supposed to be so painful and so stupid that they would act as an incentive for the supercommittee to come to a deal. Apparently, lawmakers overestimated the painfulness of the reductions or underestimated their own fecklessness.

The sequester was set to go into place on Jan. 1 of this year, but lawmakers found some $24 billion in reductions (a 50-50 mix of specific cuts and new tax revenue) to delay it until March.

And thus, here we are.

2. What is the sequester set to actually do?

The sequester would spread out about $109 billion in cuts per year, every year, for 10 years.

As lawmakers already paid for $24 billion this year, the overall level for 2013 now stands at $85 billion. But there?s another twist: The $85 billion is really more like only $44 billion in actual cuts over the next six months of the fiscal year ? because some of the cuts would apply to spending obligations that stretch out over multiple years.

A standard year of sequestration, with $109 billion in cuts, would see about half that total, some $55 billion, come from the Pentagon. This is the side of the equation meant to bring Republicans to the negotiating table.

The Democratic priorities under fire are $43 billion in cuts to all other aspects of government ? from education to social services to NASA and the National Institutes of Health.

The final bit ($11 billion) is made up of something that?s annoying to both parties: a 2 percent reduction in payments to Medicare providers.

3. Who is to blame for the sequester?

Short answer: almost everybody.

The actual mechanics of the sequester ? dangling a deficit-reduction goal in front of a team of lawmakers with a harsh consequence for failure ? was dreamed up by the White House, notably by Treasury Secretary nominee Jacob Lew.

That?s the account given by veteran journalist Bob Woodward in his book, ?The Price of Politics.?

Yet every member of the congressional GOP leadership who now criticize the cuts as the ?president?s sequester? voted for the bill.

Another version of events, outlined by John Avlon of The Daily Beast, claims that the idea came from Speaker John Boehner?s office and the House Republican Policy Committee.

Whatever the case, the bill passed with 269 ?yea? votes in the House ? 174 Republicans (the vast majority of their conference) and almost 100 Democrats to boot.

On the Senate side, 28 Republicans joined nearly all Democrats to notch 74 "yea" votes.

4. What would the cuts do to the economy?

At $85 billion, the cuts amount to a sliver of the more than $3 trillion annual federal budget. They?re an even tinier speck of America?s $16 trillion economy.

Still, with impacts measured in billions of dollars, the sequester is not trivial. The cuts could cost 750,000 jobs in 2013 and reduce GDP by more than half a percentage point, according to the Congressional Budget Office. This estimate largely jibes with the prognostications of several private-sector forecasters.

5. Will everything happen on March 1?

The lights won?t go out on federal employees and economic output won?t stop on March 1, to be sure. But if Congress doesn?t act, some practical impacts will be felt soon thereafter ? such as fewer air-traffic controllers and TSA agents at airports and fewer open hours at national parks.

Many of the cuts would take weeks to directly whack the economy. Millions of federal workers facing furlough, for example, wouldn?t stay home one day a week until April under most circumstances, because of labor laws.

Federal agencies have been planning for the sequester?s impact for at least the past several months, moreover, and could work to delay some of the hardship in hopes of a political settlement.

Some programs, including Social Security and Medicaid, are shielded from any hit, the Congressional Research Service writes. Also included, it says: ?refundable tax credits to individuals; and low-income programs such as the Children?s Health Insurance Program, Supplemental Nutrition Assistance Program, Temporary Assistance for Needy Families, and Supplemental Security Income.?

The Congressional Research Service adds, ?Some discretionary programs also are exempt, notably all programs administered by the Department of Veterans Affairs. Also, subject to notification of Congress by the President, military personnel accounts may either be exempt or reduced by a lower percentage.?

One possibility is that Congress could restore or reshape the reductions by the end of March, when funding authorization for the entire federal government expires and lawmakers could again go into a potentially bruising financial battle.

However, the prospect of the sequester has already had an economic impact. Defense contractors drastically cut back their spending during the fourth quarter of 2012 in anticipation of the sequester, for example ? an indication that private-sector growth has already been hampered by expectations of the cuts.

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Source: http://news.yahoo.com/sequester-101-happens-cuts-kick-march-1-four-200603756.html

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