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September 01, 2012

White House lays out sequestration; emphasizes destructive impact

Non-defense programs face 8.2 percent cut

A 394-page report released Sept. 14 by the White House predicts that looming automatic across-the-board cuts in the federal budget will be destructive to programs throughout the government.

The mandatory reductions, known as sequestration, are required to go into effect Jan. 2, 2013, under the Budget Control Act of 2011 (BCA) if Congress does not enact a plan to reduce the federal budget deficit by $1.2 trillion. The $1.2 trillion is in addition to $1 trillion in cuts also mandated by the BCA that are to be achieved through binding caps on discretionary defense and non-defense programs over the next 10 years. The sequestration also requires reductions each year from 2014 through 2021 in the annual caps on discretionary appropriations as well as automatic cuts in selected entitlement programs.

The threat of sequestration was included in the BCA to force Congress to act on deficit reduction. A bipartisan Joint Select Committee on Deficit Reduction appointed to craft a deficit-reduction plan failed to come up with a solution to the problem, however, and Congress has been unable to agree to a comprehensive and balanced deficit-reduction package that would avoid sequestration.

The Sequestration Transparency Act of 2012 (P.L. 112-155), enacted Aug. 7, requires the president to submit a report to Congress providing a breakdown of exempt and non-exempt budget accounts, an estimate of funding reductions, and information on the potential implementation of the sequestration. The administration’s report, issued by the Office of Management and Budget (OMB), states that there is no question that sequestration “would be deeply destructive to national security, domestic investments and core government functions.”

While a number of mandatory programs would be exempt from the cuts, the report details reductions in 1,200 budget accounts that would be affected, resulting in a 9.4 percent reduction in non-exempt defense discretionary funding and an 8.2 percent decrease for non-exempt non-defense programs.

Exempt programs include Social Security, retirement programs, veterans’ benefits, refundable tax credits (such as the Earned Income Tax Credit and the Child Tax Credit), Medicaid, the Children’s Health Insurance Program, unemployment insurance, food stamps, temporary assistance for needy families, and other programs benefitting individuals with low incomes. The reduction in Medicare funding would be capped at 2 percent.

OMB sequestration estimates for fiscal year 2013 are based on spending levels in a continuing appropriations resolution and include both spending caps imposed by the BCA and across-the-board automatic cuts for almost all non-defense discretionary programs. Pell grants and veterans’ health care are exempt from the first-year reductions.

About $16.2 billion of the total $54.7 billion in non-defense cuts would  come from mandatory, or entitlement, programs. The remainder, approximately $38.5 billion would come from discretionary programs. Cuts in discretionary programs of importance to the legal community would include 8.2 percent reductions in the Legal Services Corporation ($29 million), state and local law enforcement grants ($92 million), juvenile justice programs ($21 million), and Violence Against Women Act programs ($33 million). Possible federal judiciary cuts, which could lead to courthouse closings, would include an $85 million reduction in the defender services program.

Some other examples of fiscal year 2013 cuts in non-defense programs include $11 billion in Medicare payments to provider and insurance plans and $5.2 billion in programs that include support for farm prices, student loans, vocational rehabilitation, mineral leasing payments, the Social Services Block Grant program, and dozens of smaller programs.      

Looking ahead, discretionary cuts in both defense and non-defense programs for fiscal year 2014 through 2021 would be implemented by reducing the original BCA caps and leaving decisions to Congress about how the cuts would be implemented under the new lowered caps.

The report concludes that “no amount of planning can mitigate the significant impact of the sequestration” and that the “destructive across-the-board cuts required by the sequestration are not a substitute for a responsible deficit reduction plan.”

A Sept. 14 town hall sponsored by the Non-Defense Discretionary (NDD) Summit focused on the impact of the cuts on a range of bipartisan national priorities. The Summit is a coalition of 60 delegates representing more than 3,000 national, state and local organizations representing communities that would be adversely affected by the non-defense discretionary cuts.

Congress is expected to address the sequestration issues during a lame-duck session after the election along with pressing tax issues as they try to avoid a crisis that is being called the “fiscal cliff.” Other issues include  the expiration of the two-year extension of tax cuts that were originally enacted during the Bush administration, expiration of a temporary Social Security payroll tax cut, new taxes going into effect under the new health care law, and reversion of the Alternative Minimum Tax thresholds to 2000 tax year levels.

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