With the kids back to school and Congress back to work, we continue our series of primers on key budget topics. Today we look at sequestration.
Sequestration has become a household term this year, but many still are not sure what it entails. So, here are the basics.
Sequestration was created by the Budget Control Act of 2011 (BCA), which resulted from the last debt ceiling crisis in 2011. The sequester was never intended to take effect. It was designed to be unpalatable enough to both parties (with steep, indiscriminate cuts to both defense and domestic spending) that they would have an incentive to agree on a more sensible approach. But that is yet to happen.
This is not the first time that sequestration has been used as a deficit reduction tool. The Balanced Budget and Emergency Deficit Control Act of 1985 (also known as Gramm-Rudman-Hollings) also used sequestration to ensure that annual deficit targets were met. There is still debate today regarding the effectiveness of that mechanism.
The current iteration of sequestration will last ten years and total about $1.2 trillion in deficit savings, with automatic, across-the-board cuts equally applied to domestic and defense spending on an annual basis.
There is widespread agreement that sequestration is not the optimal approach to deficit reduction. It front-loads cuts in the short term while the economy is still trying to recover, as opposed to phasing in gradually over a longer period of time. It focuses on discretionary spending, instead of the true drivers of our long-term debt -- health care costs and an aging population. And the cuts are haphazard when they should be well thought out. Unfortunately, agreeing on exactly how to replace the sequester has been difficult.
Sequestration should be replaced with a comprehensive fiscal plan that derives savings from all parts of the budget, achieves enough deficit reduction to put the national debt as a share of the economy on a sustained downward path, addresses the drivers of the long-term debt and is phased in over time.
Check out more sequestration resources:
- Two Years of Progress, but Still Work to Do 07/17/2014
- CRFB Paper, BPC Panels Agree Budget Act Needs a Tune-Up 07/16/2014
- CBO Looks at the Long Term 07/15/2014
- How the National Debt Affects You 07/10/2014
- Low on Time, Stakes are High 07/08/2014