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Back to: ECONOMIC ANALYSIS & MONETARY POLICY
Sequestration refers to a term used by Congress to represent a fiscal policy that gives the government unlimited right to reduce budget across several departments and agencies in the nation. Also known as the sequester, this procedure plunges a mandatory and automatic cutting of over-the-board budget if the Congress is slow or unable to decide on a deficit-reducing budget within an agreed time.
A Little More on What is Sequestration
In 2011, the Budget Control Act was created and was first scheduled to go into action on January 2, 2013. However, this didnt happen as the date was later postponed to March 1, 2019, as a part of the American Taxpayer Relief Act (ATRA), signed by President Obama on January 2, 2013. Also, from 2017 to the first half of 2018, sequestration was not applied by Congress.
Origin of Sequestration
Established in 2011, the Budget Control Act (BCA) was enacted to increase the U.S. debt ceiling and to cut deficit to $1.5 trillion over the next ten years. This would result in a reduction of over $1.2 trillion. This act established a committee known as the Joint Select Committee on Deficit Reduction (famously called super committee) which comprises of 12 members to decide on deficit matters. The debt ceiling compromise, which was a part of the BCA that year, requested for sequestration if a possible case erupted where the Joint Select Committee Committee Deficit Reduction is not able to reach a simultaneous decision. This allows them to generate automatic reductions for each of the nine years specified in the act (2013-2021), with over $85 billion cuts for 2013. The first enactment of sequestration on March 4, 2013, was due to the inability of the Congress to reach an agreement on January 2, 2013. The budget cuts which was supposed to come into action on that date was pushed by the America Taxpayer Act to March 1, 2013, thus giving the Congress another chance to come up with a solution. However, Congress failed again by March 1, 2013, and the nine years deficit cut was enacted on March 4, 2013. In 2013, the sequester comprised of cuts totaling $85.4 billion, with some coming for domestic spending and the other half from the defense budget. Here is a breakdown of the cuts from each department during the first year of the enactment of the sequester:
- $42.7 billion for defense
- $28.7 billion for domestic discretionary
- Medicare had to forgo $9.9 billion
- Other compulsory programs totaled $4 billion
The sequester which is supposed to last for nine years will see that budget cuts are applied for each fiscal year through 2021. The total cut estimate is scheduled to be $109.3 billion for this period. Some programs are exempt from the sequester even when the original act implied that itd be spread across all departments. Examples of sequester-exempt programs include the Temporary Assistance for Needy Families (TANF), and the Supplemental Nutritional Assistance Program (SNAP). Quite recently, Congress has tried to increase the caps of different programs to prevent the sequester. The Congressional Budget Office states the following: Specifically, budget authority that is designated as an emergency requirement or provided for overseas contingency operations, such as military activities in Afghanistan leads to an increase in the caps, as does budget authority provided for some types of disaster relief or for certain program integrity initiatives.
References for Sequestration
https://www.investopedia.com Insights Politics & Moneywww.businessdictionary.com/definition/sequestration.htmlhttps://financial-dictionary.thefreedictionary.com/sequestrationhttps://en.wikipedia.org/wiki/Budget_sequestrationhttps://www.epi.org/research/sequestration/