Q: What is the sequester?
A: It’s the official name for the automatic federal spending cuts that begin today.
Sequestration will reduce projected spending by $85 billion over the final seven months of this fiscal year and by $1.2 trillion over the next nine years. Half of the cuts will affect defense spending; the remainder will be spread over other federal agencies, as detailed in the chart on this page.
With a few exceptions, lawmakers from both parties say they want to avoid sequestration because its across-the-board nature is a poor way to make choices about spending cuts. The issue is that they don’t agree on how to do it.
Q: Why is this happening now?
A: Because lawmakers couldn’t come up with a better option. In August 2011, as they debated an increase in the federal debt ceiling, Republicans were demanding spending cuts equal to the size of the debt limit. President Barack Obama wanted a debt limit increase of more than $2 trillion to get past the 2012 election. Lawmakers agreed to cut about $900 billion up front and do the rest through sequestration, intending to create an outcome so unpalatable that they would come up with a way to avoid it.
The New Year’s Eve deal to head off automatic tax increases delayed the cuts for two months. The deal also reduced the size of the cuts from $109 billion this year, with a combination of cuts and tax revenue measures.
The term “sequestration” stems from a 1985 deficit-reduction law, when the across-the-board cuts were first enacted to ensure that Congress would act. In 2011, the administration proposed — and Republicans accepted — sequestration as the backstop to deficit reduction if a 2011 supercommittee and regular congressional rules didn’t produce results. They didn’t.
Q: What is Congress doing about it now?
A: Obama is meeting today at the White House with congressional leaders of both parties.
Obama will push Republican congressional leaders to accept higher tax revenue; Obama wants a 50-50 mix of cuts and tax increases, and sources say he will pressure Republicans to name even one tax break they are willing to end to stop the cuts. Republicans are expected to reply that they already compromised at the beginning of the year, when they agreed to more than $600 billion in new taxes.
Obama says he wants to pursue a broader budget deal that would include a rewrite of the tax code and some cuts to health care programs. Congressional Republicans say spending cuts alone, particularly in entitlement programs such as Medicare and Medicaid, should be the solution; they say they are willing to shift the cuts to “mandatory” programs not subject to Congress’ annual discretion, like food stamps, children’s health insurance and Medicaid, and spread them out over 10 years.
Still gridlocked over how — or whether — to avert sequestration, the two major parties can’t even agree on when the budget cuts start going into effect: Republicans said the spending cuts start today; the White House says Saturday.
Either way, Republicans in the House of Representatives signaled they’re already looking past the all-but-certain start of the spending cuts to the next budget fight, over the legislation needed to finance the entire government.
Q: Will there be immediate effects today?
A: Probably not, in many cases. Agencies have had five months — since the start of the fiscal year Oct. 1 — to plan for changes, so the effects may be gradual. That makes sequestration different from a partial government shutdown like in 1995 and 1996.
Today or sometime very soon — again, it’s unclear — federal offices must tell contractors, grant recipients, governors and others how much money they stand to lose. By the end of the month, people will begin to notice changes.
The unemployed will feel the most immediate effect: The first checks that go out after today’s deadline will have a reduction of 9.4 percent. The first checks to doctors and others who care for Medicare patients will also be nicked.
By April 6, layoffs and furloughs will begin in the Defense Department’s enormous civilian workforce. Other furloughs, affecting air traffic controllers, meat inspectors and others, will begin in April and are likely to accelerate as the departments struggle to meet savings targets by Sept. 30.
Q: What are the consequences for government services?
A: Under the sequestration rules, the federal departments and agencies cannot choose which programs to cut — the percentage cuts must apply to specific programs, projects and activities. Everything is subject to the same percentage cut. That spreads the pain, but it also prevents agency managers from focusing the cuts on programs that may be ineffective or inefficient — and protecting those that may affect public health and safety.
Agencies with contracts they can’t break or those that spend a large share of their costs on staff may have little choice other than to implement furloughs.
Q: What are some specific cuts that could happen?
A: The military takes the biggest hit. The Pentagon would furlough up to 800,000 civilian employees, requiring them to take unpaid time off. Defense-dependent states such as Virginia and Texas will be particularly hard-hit.
Modernization, maintenance and demolition projects at military facilities could be put on hold or canceled. The Navy plans to reduce procurement of the Joint Strike Fighter and cancel Blue Angels shows. Some defense contractors already are laying off workers because of coming cuts in Pentagon outlays.
The sequester also appears likely to have a disproportionate effect on areas of the health system already hobbled by years of retrenchment or underfunding, including public health and medical research.
Although the Medicare program will account for the largest chunk of dollars cut from health care simply because of its great size, the scheduled 2 percent reduction in its payments to doctors and hospitals is significantly smaller than what many public health and research programs face.
Laboratories at major universities and medical centers are already laying off scientists, even before the latest round of cuts is scheduled to take effect. And local public health officials, hit by years of cutbacks, are scaling back immunization campaigns and other efforts to track and control infectious diseases.
Also threatened are new initiatives sparked by public health crises such as mass shootings — which have generated calls for strengthening the nation’s mental health system — and outbreaks of foodborne illness.
Compounding the challenges is a lack of direction from Washington. Obama administration health officials have provided little guidance about how they plan to implement many of the cutbacks and when precisely they will hit.
A Health and Human Services Department spokesman said only that the agency would be sending general notifications today to those who rely on federal money. More specific instructions will follow. The agency is expected to cut about $15.5 billion from its overall spending, with about two-thirds of that coming from Medicare, which covers the elderly and disabled.
Q: What other cuts should be expected?
A: Because they are across the board, they will touch almost every domestic program. For instance:
• More than 2,000 food inspectors will be furloughed. That could lead to delays in inspecting meat, increasing the chance of food-borne illness.
• Primary and secondary schools will feel the pinch with reductions in Head Start and special-education funding. But the greatest education-related impact will be felt by university students in need of financial aid. Federal work-study programs will be whacked, and low-income students could lose more than $300 from their Supplemental Educational Opportunity Grants. Other students will face higher loan-origination fees the next time they secure a loan.
• Social programs from preschool to health care stand to lose 10 percent of more of their federal funding. Spending on child nutrition and housing vouchers also will be reduced.
• The Federal Aviation Administration is predicting waits of up to 90 minutes at some airport security checkpoints. Major hubs such as New York, Houston and San Francisco are likely to be among the hardest-hit. About 10 percent of air traffic controllers will be furloughed at any time, leading to longer waits on the runway — but not in a predictable pattern.
• FEMA will lose $375 million from its disaster-relief budget.
• The Department of Homeland Security warns of delays of four hours or more at U.S. ports of entry. Imported goods will also be delayed at U.S. ports.
• Congress itself would treated like any other agency, with cuts to such things as committee budgets and building maintenance. But lawmakers’ salaries won’t be affected; same with the president and other top government officials.
Q: Do the cuts affect all federal spending?
A: No. The exemptions detailed in the chart, in fact, create a disproportionate effect in other areas of the budget.
• Military pay and veterans benefits are exempt, as are Social Security benefits.
• Payments to Medicare providers would be cut less than other spending, with a maximum of 2 percent.
Q: How big are the automatic cuts?
A: Compared with annual spending, the cuts will be about 8 percent for defense programs. Nondefense programs face about a 5 percent cut. Because the first year’s cuts would be made over the final seven months of fiscal 2013, the effective reductions would be about 13 percent for defense programs and 9 percent for nondefense programs.
Q: What are the economic consequences if Congress does nothing?
A: The U.S. economy won’t collapse. A few economists even say the sequester and its indiscriminate whack at the budget could eventually help the economy grow faster than it would have otherwise. A few politicians on both sides say about the same thing.
But the sequester is coming at a particularly inopportune time in the still-fragile recovery; it promises to bite consumers and business activity quickly; and the Washington area will feel its pain acutely.
While the cuts represent a relatively small slice of federal spending, most forecasters say they are large enough to reduce economic growth by at least half a percentage point for the year. They will kill public- and private-sector jobs — 750,000 of them by the end of the year, according to the Congressional Budget Office — and drain precious buying power out of the economy.
Forecasters also expect the economy to lose a full point of growth this year from the payroll and income tax increases that lawmakers agreed to in the “fiscal cliff” deal at the end of 2012. And in recent weeks, a new threat to growth has emerged: a sharp rise in gasoline prices that many economists had not predicted for this year.
But, unlike during the tax negotiations in November and December, stocks and Treasury bonds haven’t reacted instantly to statements from congressional leaders.
Q: What does the public think?
A: Not much, so far. Recent surveys show just 1 in 4 Americans are following closely the $1.2 trillion debate, numbers that serve as a reminder that although talk of the sequester is dominating the nation’s capital, it has yet to permeate the public at large.
Not only are most people paying very little attention to the sequester, they also have only the faintest sense of what it would do. About 1 in 5 understand “very well” what happens.
Q: Is this the only fiscal feud facing Congress?
A: No. A temporary measure extending government spending expires March 27, and failure to act would cause a partial government shutdown. Several months after that, the U.S. will again approach the debt limit. Any resolution to sequestration could include provisions that would address the other deadlines.
As a final act Thursday, the Senate shot down competing bills to undo, or at least mitigate the impact of, the across-the-board cuts in a bit of political theater — the votes were all but designed to fail — that ensured the cuts would go into force, at least until the parties can agree on a final outcome.
Sources: Bulletin reports, Bloomberg News, The Washington Post, New York Times News Service, Hearst News Service, Forbes, Office of Management and Budget, Congressional Budget Office, Bipartisan Policy Center, Washington Post-Pew poll