by Laicie Olson [contact information]
Fact Sheet: The Budget Control Act and Sequestration
The Budget Control Act
The Budget Control Act was signed into law by President Barack Obama on August 2, 2011 after being supported by a majority of Republican Members of Congress and many Democrats. The bill raised the United States debt ceiling after a series of congressional battles that tested the United States’ full faith and credit.
The law established budget enforcement mechanisms that were estimated to reduce federal budget deficits by a total of at least $2.1 trillion from 2012-2021.
$900 billion of that total would come from yearly caps on discretionary appropriations.
A Congressional Joint Select Committee on Deficit Reduction, frequently called the "supercommittee," was created to produce a plan by November 2011to achieve at least an additional $1.2 trillion in savings. If the supercommittee failed to come to an agreement, across-the-board automatic spending cuts would come into force. The supercommittee failed.
Those automatic spending cuts, otherwise referred to as “sequestration,” will come into effect in January 2013, should Congress fail to act in the interim.
Sequestration requires across-the-board cuts to defense and non-defense programs, spread over nine years. The cuts would be automatic; every program would be required to be reduced by a set percentage. The federal agencies were not permitted to determine where the cuts should or should not be made, although certain budget segments are exempt, such as military personnel accounts.
The Congressional Budget Office estimates that sequestration cuts would produce the following outlay savings:
• $454 billion from new discretionary appropriations for defense programs.
• $294 billion from new discretionary appropriations for non-defense programs.
• $0.1 billion in mandatory spending for defense programs.
• $170 billion in mandatory spending for non-defense programs such as Medicare.
• About $31 billion stemming from the reductions in premiums for Part B of Medicare and other changes in spending that would result from the sequestration actions.
• An estimated reduction of $169 billion in debt-service costs. Under sequestration, the base Pentagon budget would fall to $472 billion, or approximately the same level of funding as fiscal year 2007 after adjusting for inflation. After 2013, defense spending would steadily rise.
Sequestration budget caps are designed so that money can be moved between programs. Thus, domestic discretionary spending could potentially take more or less of the budgetary burden than defense discretionary spending.
However, savings required in any year cannot be deferred or accelerated, say from Fiscal Year 2014 to Fiscal year 2015.
Afghanistan war-related funding is specifically exempted from sequestration.
Most mandatory spending is exempt from the sequester, including Social Security, retirement programs, veteran’s benefits, Medicaid, unemployment, and food stamps.
Medicare is subject to the sequester in the form of provider payment cuts, but such cuts cannot exceed 2 percent.
A number of Members of Congress are unhappy with their handiwork. Some are proposing to defer the sequester, or place the entire burden on domestic social programs rather than defense.
Congressional action to adjust sequestration could take place before the end of the year as part of a mega-deal that involves discretionary spending, taxes and entitlements such as Social Security and Medicare.
Laicie Olson is Senior Policy Analyst at the Center for Arms Control and Non-Proliferation, where her work focuses on weapons proliferation, military spending and global security issues.