What a $1.2 Trillion Sequester Could Look Like

by Veronique de Rugy

Last week, I wrote about Dan Mitchell’s theory that the best Republicans on the super-committee can do to reduce the size of our debt is “nothing,” since failing to reach an agreement would trigger a $1.2 trillion sequester. This is what the annual and cumulative spending cuts under the Budget Control Act sequester could look like:

This is data from the Congressional Budget Office (CBO) and PEW Research estimates of budget cuts in discretionary and mandatory spending that would occur if the automatic enforcement mechanisms were triggered. Under sequestration, an amount of money equal to the difference between the cap set in the budget resolution and the amount actually appropriated is “sequestered” by the U.S. Treasury and not handed over to the agencies to which it was originally appropriated by Congress. Since the Gramm-Rudman-Hollings Act of 1985, the number of programs exempt from sequestration has tended to increase. Today, exempt programs include Social Security, veterans’ benefits, Medicaid, the Children’s Health Insurance Program, unemployment insurance, food stamps, and a host of others; cuts to Medicare are capped at 2 percent.

As PEW research explains: “The CBO estimates that about 70 percent of mandatory spending would be exempt from sequestration, virtually all of it in non-defense mandatory spending, such as Social Security and Medicaid. Most of Medicare would be limited to a two percent annual cut. About 42 percent of the savings from the automatic sequester, or about $454 billion over the next decade, would fall on defense discretionary spending. Another 42 percent would come from non-defense discretionary and mandatory spending, and the remaining 16 percent would result from lower interest costs.”

Unfortunately, CBO’s analysis can only approximate the ultimate results; the administration’s Office of Management and Budget would be responsible for implementing any such automatic reductions on the basis of its own estimates.

That is, assuming Congress doesn’t decide to ignore the act altogether. Here is a good piece by budget expert Stan Collender about why “the debt ceiling increase/deficit reduction deal signed into law on August 2 isn’t likely to be in place on January 1, 2013, or to have its projected impact over the full 10 years.”