Sequester II: The Fall's Scariest Sequel. Coming to a Community Near You??

Aug 27, 2013

Elizabeth Lower-Basch

During the last days of 2012, the political news was dominated by stories of the "fiscal cliff" and "sequestration."  At the last minute, Congress and the President came to a deal that extended most of the Bush-era tax cuts and other provisions that would otherwise have expired on January 1, 2013.  Taxes were allowed to rise for some of the wealthiest households, and payroll taxes returned to their usual levels.  Congress temporarily postponed the automatic, across-the-board spending cuts of sequestration - but they began to take effect on March 1.  These cuts have disproportionately affected the poor and vulnerable - children in Head Start, homeless families hoping for a housing subsidy, Native American students at Tribal schools.  While the effects on middle-class families have been less visible, the Congressional Budget Office has estimated that these cuts will slow U.S. Gross Domestic Product growth by 0.7 percentage points and cost 900,000 jobs.

However, most Americans have not yet focused on the fact that another round of sequestration cuts could hit this January - even deeper than last year's.  The Budget Control Act of 2011 - created under the deal to raise the debt ceiling, which is the statutory limit on how much the United States can borrow - sets caps on total defense and non-defense discretionary spending that ratchet down each year through 2021.  If Congress fails to agree on appropriations bills that conform to these caps - as seems increasingly likely - another round of across-the-board cuts will take effect 15 days after Congress adjourns for the year, presumably in January.  These cuts are likely to be more painful than the 2013 cuts because agencies are likely to have exhausted any carry-over funds from previous years that they may have used to cushion the effects of the sequester.

Sequestration was designed to be politically painful to both parties, with cuts to all discretionary government spending, defense and non-defense, in order to force both sides to negotiate a deficit reduction plan.  However, Congress was unable to come up with a plan to set aside the sequester in FY 2013.  More members of Congress on both sides of the aisle are now expressing the need to eliminate the sequester.  In particular, shortly before Congress left for its August recess, the spending bill for Transportation and Housing programs was defeated in the House as some Republicans joined Democrats in refusing to support the lower level of funding consistent with the Budget Control Act.

However, most Republicans want to replace the sequester with cuts to the mandatory spending programs, such as Social Security, Medicaid and Supplemental Nutritional Assistance Program (SNAP) that are not affected by the sequester.  President Obama has stated that he will only consider such cuts in the context of a balanced deficit reduction plan that includes new revenues.  Congress and the President were unable to come to agreement on such a plan in late 2012, and have not seriously negotiated on one since. Others in Congress have proposed to lift the caps for defense spending, while continuing to apply sequestration to non-defense discretionary spending.

Between now and January, Congress and the President face a series of deadlines that they must navigate in order to avoid shutting down some or all government agencies- or having the U.S. default on its debts.

  • October 1, 2013: Start of Fiscal Year 2014. By this date, Congress is supposed to have finished work on its appropriations bills to provide funding for FY 2014. However, deep disagreements both between House and Senate bills, and within each chamber, ensure that this will not occur. Therefore, Congress must pass a short-term extension, or "continuing resolution," in order to avoid a government shutdown. Congress must also act by this date to extend funding for Temporary Assistance for Needy Families (TANF) and to avoid dramatic increases in government price supports for dairy and certain other agricultural products.
  • Mid-October, 2013: While the specific date is uncertain, OMB estimates that the U.S. Treasury will reach the limit on how much it can borrow in mid-October. Congress must vote to raise the debt ceiling by this point, or the U.S. will default on the debts it owes, and be unable to make the payments it has committed to, from paychecks to government employees, to Social Security checks, to payments for goods and services. House Republicans have suggested that they will require significant cuts to mandatory programs - or even a repeal of "Obamacare" - as the price of such an increase. President Obama has stated that he is not willing to negotiate over this.
  • December 31, 2013. Federal extended unemployment insurance expires on this date, as do a number of targeted tax provisions. Without Congressional action, the fees paid by Medicare to physicians will drop sharply.

With a deeply divided Congress and multiple pending deadlines, it's easy to feel like this is the same old story that we've been hearing for years.  But this sequel could be the scariest one of all.   Congress needs to hear clearly that a government shutdown, default on the debt, cuts to core safety net programs, and continued strangling of government services through sequestration are all unacceptable.  Instead, Congress must come up with a plan that replaces the sequester for multiple years and supports both short- and long-term growth through balanced and gradual deficit reduction.

In Hollywood, summer is the time for movies full of special effects and explosions, while the fall schedule has more serious and dramatic fare.  It's time for Congress to get serious too -- but let's hold the drama. 

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