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Why One Simple Fix Would Dramatically Reduce the Sequester

Why One Simple Fix Would Dramatically Reduce the Sequester

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Congress always intended to replace the sequester with smarter deficit reduction—then they slashed deficits but still left the full sequester in place.
Congress always intended to replace the sequester with smarter deficit reduction—then they slashed deficits but still left the full sequester in place.

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Published by: Center for American Progress on Nov 25, 2013
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1 Center for American Progress | Why One Simple Fix Would Dramatically Reduce the Sequester
Why One Simple Fix Would Dramatically Reduce the Sequester
By Harry Stein November 26, 2013
For he pas several monhs, auomaic across-he-board spending cus have damaged our economy and naional securiy. Tese cus, known as he sequeser, were never sup-posed o happen.
1
 Congress always planned o replace he sequeser wih a smarer deb-reducion package. Ten Congress did, in ac, pass anoher deb-reducion package a he end o 2012, commonly known as he fiscal cliff deal. Bu unorunaely, he savings rom he fiscal cliff deal were no couned oward replacing he sequeser.Fixing he sequeser o accoun or he deb reducion in he fiscal cliff deal would lay he oundaion or a sable ederal budge and a srong economic recovery. Even beter, he benefis o applying he fiscal cliffs defici reducion o he sequeser would flow dis-proporionaely o criical invesmens such as educaion, research, and inrasrucure. Tese secors have borne he brun o recen budge cus, bu hey are exacly where we should be invesing o rebuild he economy.
How we got here
Congress originally passed he sequeser as par o he Budge Conrol Ac o 2011,  which reduced he defici by more han $2 rillion over 10 years.
2
 Abou hal o hose savings came rom spending caps ha essenially roze discreionary spending or he nex 10 years.
3
 Te res o he defici reducion was supposed o come rom legislaion developed by a special congressional commitee, nicknamed he “super commitee.” Bu i he super commitee and Congress ailed o implemen he defici reducion required  by he Budge Conrol Ac, he sequeser would kick in and auomaically cu spending  by an addiional $1.2 rillion.
4
Te sequeser was deliberaely designed o be a errible policy.
5
 I was supposed o orce Congress o compromise and make ough decisions o reduce he defici. Unorunaely, he members o Congress on he super commitee ailed o make hose compromises.  As 2011 drew o a close, he super commitee missed he deadline o produce legislaion ha would mee he defici-reducion arges in he Budge Conrol Ac.
6
 
2 Center for American Progress | Why One Simple Fix Would Dramatically Reduce the Sequester
One year laer, a he end o 2012, Congress aced anoher crisis, his one nicknamed he “fiscal cliff.” Te massive ax cus signed ino law by Presiden George W. Bush were scheduled o expire, and he sequeser was abou o kick in.
7
 Congress passed legislaion ha allowed some o he ax cus or he wealhies Americans o expire while perma-nenly exending all o he middle-class ax cus.
8
 Allowing hose ax cus o expire, along  wih oher savings in he fiscal cliff deal, reduced deficis by $737 billion over 10 years compared o wha deficis would have been under curren policy a he ime.
9
Had he fiscal cliff deal been produced by he super commitee insead o he normal legislaive process, i would have auomaically reduced he sequeser spending cus by $737 billion.
10
 Insead, he sequeser was lef nearly unouched. Congress did pospone he sequeser as par o he fiscal cliff deal, bu only or wo monhs. Afer ha, he sequeser kicked in.
How to fix it
Te Budge Conrol Ac calculaes he size o he sequeser cu by subracing he deb reducion produced by he super commitee rom a base o $1.2 rillion. Since he super commitee ailed o produce a bill, ha leaves a ull $1.2 rillion sequeser o  be implemened over nine years. Bu wheher he fiscal cliff deal was produced by he super commitee or no, i sill delivered more han hal o he deb reducion required  by he Budge Conrol Ac’s sequeser provision. All Congress needs o do is amend he Budge Conrol Ac o include he deb reducion rom he fiscal cliff deal in he sequeser calculaion. Subracing he fiscal cliff savings o $737 billion rom he $1.2 rillion sequeser base leaves $463 billion o sequeser cus. Te remaining sequeser cus will also yield exra savings by reducing he naional deb, and hereore he ineres ha mus be paid on ha deb. o accoun or ha exra savings, he sequeser law reduces he overall amoun o program cus by 18 percen. Finally, he sequeser law spreads hose cus over nine years, and hen splis each year’s cus evenly beween deense and nondeense programs.
11
 When he fiscal cliff savings are included in he sequeser calculaion, he annual amoun o sequeser cus alls rom $109 billion o $42 billion. Ta reduces he deense and nondeense cus rom $55 billion o $21 billion. Reducing he deense sequeser gives he Penagon flexibiliy o draw down naional securiy spending in a responsible and sraegic manner. Bu he benefis o applying he fiscal cliff defici reducion o he sequeser are even greaer on he nondeense side.
 
3 Center for American Progress | Why One Simple Fix Would Dramatically Reduce the Sequester
Te nondeense sequeser is no allocaed evenly wihin he domesic budge. Forunaely, many programs ha orm he oundaion o American reiremen securiy and he social saey ne are proeced compleely, such as Social Securiy, Medicaid, and he Supplemenal Nuriion Assisance Program, or SNAP, commonly known as ood samps.
12
 Medicare and some oher ederal healh programs are also parially proeced by limiing he sequeser cus o 2 percen.
13
 Any sequeser cus ha exceed his 2 percen hreshold are reallocaed o he res o he domesic budge, meaning exra cus.
14
 As a resul, he sequeser has made paricularly deep cus o invesmens in educaion, scienific research, and inrasrucure, which all ino he  broad caegory o nondeense discreionary spending.Since he nondeense discreionary budge is hi hardes by he nondeense sequeser, i also benefis mos rom reducing he sequeser. I he fiscal cliff savings are included in he sequeser calculaion, he nondeense sequeser becomes an across-he-board cu o 1.82 percen. Ta delivers a small amoun o relie o Medicare, bu Medicare cus were already limied o 2 percen. Te bigges impac is in he nondeense dis-creionary budge. While he sequeser is currenly se o cu abou $37 billion rom nondeense discreionary spending,
15
 accouning or he fiscal cliff savings reduces he sequeser cus o $9 billion. Accouning or he savings in he fiscal cliff deal reduces he nondeense discreionary sequeser by 75 percen, while he overall sequeser is reduced by 61 percen. Ta means Congress can allocae $28 billion o preven more cus o job raining, schools, ranspora-ion, and wherever else hose unds are mos needed wihin he nondeense discreionary  budge o ge our economy back on rack.
TABLE 1
Caluclating the 2014 sequester under current law and with fiscal cliff savings included
Note: All figures in billions of dollars. Totals may not add up due to rounding.
Current lawIncluding fiscal clif
Step 1:
 Start with $1.2 trillion in required decit reduction$1,200.00$1,200.00
Step 2:
 Subtract enacted decit reduction (in current law, only super committee savings is counted)0.00737.001,200.00463.00
Step 3:
 Deduct 18 percent for debt service savings, leaving 82 percent in required program cuts984.00379.66
Step 4:
 Divide by nine to calculate annual reductions109.3342.18
Step 5:
 Split reductions 50/50 between defense and nondefense functions
54.6721.09
Sources: Office of Management and Budget; Jeff Zients, “American Taxpayer Relief Act Reduces Deficits by $737 Billion,” The White House blog, January 1, 2013.

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