To Sequester, or Not to Sequester

U.S. CapitolCurrent law dictates that on Jan. 2, 2013, more than $100 billion in across-the-board domestic and defense discretionary and mandatory program cuts will occur. The law, the Budget Control Act, was enacted in August 2011 and produces $2.1 trillion in deficit savings through two “pots.” The first pot reduces the nation’s debt through a 10-year discretionary spending cap. The second pot, as referenced above, was triggered after Congress was unable to reach an agreement in the fall of 2011 and will reduce the deficit by  $1.2 trillion over nine years. While programs such as Medicaid and Temporary Assistance for Needy Families are exempt, funding for education, public safety and environment programs, for example, will be reduced by over eight percent in FY 2013 with similar reductions to follow in eight subsequent fiscal years.

Despite the political failings to both finalize appropriations work or reach a comprehensive deficit reduction plan, the one constant this year has been the expressed desire to modify or repeal the looming sequester. Only a few lawmakers have publicly stated a desire to keep the cuts in place, and that’s solely as a mechanism to force substantial, long-term deficit savings. Both sides of the aisle have urged either postponing the start of sequester, altering the cuts, or its outright elimination. The list below offers examples of such efforts in the 2012 calendar year.

Secretary Panetta’s Proposal

At the beginning of 2012, Defense Secretary Leon Panetta testified in front of both the House and Senate Defense Committee offering defense savings that would overrule the defense portion of sequestration. Instead of the annual reductions in the Budget Control Act, Panetta suggested a slight cut of $6 billion in FY 2013, but ultimately reaching similar 10-year reductions of $487 billion. In later reports, Panetta has stated his desire “to work to develop some approach that can de-trigger sequestration before it happens.”

President Obama’s FY 2013 Budget Proposal

On Feb. 13, President Obama released his FY 2013 spending proposal. The president’s plan  would replace sequestration with $3 trillion in deficit savings over 10 years. These cuts would be accomplished by allowing the 2001/2003 tax cuts for high-income individuals and families to expire at the end of 2012, as current law states, and through reforms to entitlement programs, such as blending the different federal matching rates for Medicaid and the Children’s Health Insurance Program (CHIP) program into an enhanced rate.

House Budget Resolution / House Reconciliation

In response to the president’s budget plan, House Budget Chairman Paul Ryan (R-WI) countered with a 10-year budget proposal that would achieve $5 trillion in savings. Titled “The Path to Prosperity,” the budget resolution would replace sequestration through a budget reconciliation that would give six House committees the responsibility of finding $261 billion of savings over 10 years. Passed in the House in early May, the Sequester Replacement Reconciliation Act, H.R. 5652, would eliminate the first year of sequestration cuts through the block granting of Medicaid and the Supplemental Nutrition Assistance Program, elimination of the Social Services Block Grant and cuts in discretionary spending.

Senate Budget Resolution

Senate Budget Chairman Kent Conrad (D-ND) offered “The Fiscal Commission Budget Plan” in April, drawing large comparisons to the Bowles-Simpson recommendations. Weighing in at $5 trillion in deficit savings, the proposal follows a similar theme as other budget proposals: cut discretionary spending, comprehensive tax reform and savings in health care costs. The plan was viewed as symbolic in nature, as it was unable to reach the Senate floor.

Sen. Carl Levin’s Proposal

At a hearing in June, Senator Carl Levin (D-MI), chairman of the Senate Armed Services Committee, promoted a plan replacing the sequestration trigger. Sen. Levin argued that defense and non-defense discretionary spending should not carry the full weight of federal spending cuts. Specifically, Sen. Levin proposed that these categories be decreased by only $200 billion over the next ten years, and have the additional trillion of reductions be made up of revenue increases, entitlement reform and savings on debt interest.

The National Security and Job Protection Act

The House passed its second legislation amending the Budget Control Act’s sequestration trigger in mid-September via the National Security and Job Protection Act. H.R. 6365, introduced by Florida Representative Allen West (R-FL), is vague in what,  if anything, would replace sequestration. Passed by a vote of 223-196, the legislation is unlikely to be voted on in the Senate.

Gang of 8 Efforts

Originally formed in 2011 in hopes to develop a comprehensive, bipartisan deficit reduction agreement, six U.S. senators have grown by a third this fall and are now renewing efforts to reduce the nation’s debt and possibly undo the sequester. The “Gang of 8” includes Senator Dick Durbin (D-IL), Senator Saxby Chambliss (R-GA), Senator Tom Coburn (R-OK), Senator Mark Warner (D-VA), Senator Mike Crapo (R-ID), Senator Michael Bennet (D-CO), Senator Lamar Alexander (R-TN) and Conrad. The group is working on a deficit framework that would provide instructions to congressional committees to determine spending reductions and changes to the federal tax code. If an agreement is reached, the Gang of 8’s plan would avoid sequestration’s automatic, across-the-board spending cuts in January 2013.