What is Sequestration?

Sequestration:

The term used in Washington to describe the mandatory budget cuts. Last summer, Congress and the White House reached a deal that would trigger automatic across-the-board spending cuts of nearly $1 trillion over 10 years, beginning Jan. 2 — half from defense, half from domestic programs. The automatic cuts would be stopped if Congress reaches a plan to reduce the deficit.

Federal cuts were supposed to be so unthinkable that they would compel lawmakers to get back to the table to craft a long-term budget deal and deficit reduction plan after Congress’ supercommittee failed to do so in 2011. Lawmakers never intended for sequestration to take place when they wrote it into a bill called the Budget Control Act of 2011

Sequestration is an automatic spending cut inserted into the Budget Control Act of 2011. The cuts (half from defense, half from domestic programs) were designed to light a fire under the Supercommittee to agree on specific cuts, because failure would mean a blanket slashing of many areas of the federal budget, gutting both parties’ spending priorities.

Roughly half that sum – between $500 billion and $600 billion – will come from the Pentagon and other national-security accounts. But even if sequestration takes place, it will pare defense spending back only to 2006’s level. It’s not going to be the disaster some predict.

The very modest proposed cuts in defense would mean that instead of U.S. military spending that which is “bigger than that of the next 17 countries combined,” as the Economist put it, we might only have a military budget that is bigger than the next 15 countries combined.

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The Myth of the Exploding Safety Net

Richard Kogan / Center for Ammerican progress (CAP)
October 23, 2012

A new Congressional Research Service (CRS) report shows that federal spending on low-income programs has risen significantly in recent years. Does this mean that safety net programs are growing out of control and are a major cause of the nation’s long-term budget problems, as some have suggested? No.

As we explained in May, virtually all of the recent growth in spending for means-tested programs is due to the recession and rising costs throughout the U.S. health care system, which affect costs for private-sector care at least as much as for Medicaid and other government health programs.

The Congressional Budget Office (CBO) projects that federal spending on means-tested programs other than health care will fall substantially as a percent of gross domestic product (GDP) as the economy recovers (see graph) — and fall below its 1972-2011 average.

Here are the specifics:
■Federal spending for mandatory programs outside health care, including refundable tax credits such as the Earned Income Tax Credit, averaged 1.3 percent of GDP over the past 40 years. This spending reached 2.0 percent of GDP in fiscal year 2011, a substantial increase. But CBO projects that it will return to 1.3 percent by 2020 and then remain there.
■Federal spending for low-income discretionary programs is virtually certain to fall as a percent of GDP in the coming decade as well. Under the 2011 Budget Control Act’s funding caps, non-defense discretionary spending will fall over the decade to its lowest level as a percent of GDP since 1962 (and probably earlier).
■As a result, total spending for low-income programs outside health care — both mandatory and discretionary — is expected to fall below its prior 40-year average.

Since these programs aren’t rising as a percent of GDP, they do not contribute to our long-term fiscal problems.

To be sure, Medicaid is projected to rise significantly as a share of GDP, largely because of the growing cost of health care throughout society. Medicaid, however, isn’t the cause of this systemwide cost growth.

Per-beneficiary costs have risen more slowly in Medicaid than under private insurance over the past decade and are expected to continue doing so. Moreover, it costs Medicaid much less than private insurance to cover people with similar health status because Medicaid pays providers lower rates and has lower administrative costs. And the health reform law is testing new methods of delivering health care, which hold the promise of cutting costs and improving the quality of care throughout the U.S. health care system.

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Related articles:
Poverty Rate Would Nearly Double Without the Safety Net
Medicare and Medicaid Spending Trends Don’t Justify Restructuring
What’s Driving Projected Deficits?

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