Superfail Fallout: What Happens Now? by Peggy Hall, EVP, PHCC of California
Submitted by PHCCcali_admin on Thu, 12/15/2011 - 11:33am
The big news in Washington last week was that the Joint Select Committee on Deficit Reduction (Supercommittee) failed to produce a bill to reduce the deficit. The result of their failure is the triggering of automatic, across-the-board government spending cuts sufficient to reduce the deficit by a total of $1.2 trillion, starting in 2013. Now everyone is scrambling around trying to figure out exactly what that means.
Since the spending cuts don’t actually happen until 2013, many observers feel that gives Congress plenty of time to play around with the requirements. Even though President Obama has vowed to veto any legislation that would reduce the amount of deficit reduction that must occur, he left the door open for additional legislation to come up with the money, and some members of Congress are already thinking along those lines. Representative Edolphus Towns (D-NY) announced this weekend that he
plans to induce a bill to cancel the two-percent Medicare payment cut directed at hospitals and physicians in 2013. Meanwhile, numerous congressional Republicans, as well as Obama Defense Secretary Leon Panetta, have proposed reshuffling the cuts so that they do not disproportionately hit defense spending.There is much congressional precedent for restructuring of the spending cut trigger, too. The last time automatic budget cuts occurred was in 1986, when, according to the Congressional Research Service, only $11 billion was saved. Other automatic cuts have been repealed or retooled, or legislation has been specifically passed to prevent them. Also, Congress has circumvented automatic cuts in the past by declaring certain spending as “emergency appropriations.”
If the automatic cuts do kick in, though, there are very specific rules that must be followed, known as the budget sequestration process. For the nerdiest of Washington Update readers, here is a simple primer on budget sequestration released by Senator Majority Leader Harry Reid (D-NV) last week:
The Budget Control Act’s formula for establishing specific cuts begins by reducing the $1.2 trillion by 18% ($216 billion) to account for interest savings that will flow from the spending cuts. This leaves $984 billion that must be achieved through equal amounts of spending cuts in each of the nine years between fiscal years 2013 and 2021, or about $109 billion per year.
The total annual spending cut of about $109 billion is divided equally between defense and non-defense spending. Thus, each such category of spending must be reduced by roughly $55 billion annually. Generally speaking, these cuts are divided proportionately between the discretionary and nonexempt direct spending within each broad category. Since defense spending is largely discretionary
and much direct spending is exempt, sequestration primarily will affect discretionary spending ($813 billion of the $984 billion in non-interest savings).
CBO estimates that sequestration will produce the following:
* Cuts ranging from 10% in 2013 to 8.5% in 2021 in the caps on new defense discretionary appropriations, for a total cut in budget authority of $492 billion, which is estimated to yield $454 billion in outlay savings.
* Cuts ranging from 7.8% in 2013 to 5.5% in 2021 in the caps on new non-defense discretionary appropriations, for a total cut in budget authority of $322 billion, which is estimated to yield $294 billion in outlay savings.
* Cuts ranging from 10% in 2013 to 8.5% in 2021 in mandatory budgetary resources for nonexempt defense programs, generating savings of about $0.1 billion.
* Cuts of two percent each year in most Medicare spending because of a special rule for that program, producing savings of $123 billion, and cuts ranging from 7.8% in 2013 to 5.5% in 2021 in mandatory budgetary resources for other nonexempt nondefense programs and activities, yielding savings of $47 billion. Thus, savings in non-defense mandatory spending would total $170 billion.
Reductions in discretionary spending in FY13 would be implemented on January 2, 2013, by an order that cancels budget authority provided for that year to specific accounts. In subsequent years (fiscal years 2014-2021), discretionary cuts are achieved by reducing discretionary spending limits.
A large number of mandatory programs are exempt from sequestration, including Social Security, Medicaid, federal retirement programs and many programs that assist those with low incomes. There also are special rules that apply in some cases, such as the two-percent limit on cuts to Medicare. For more detailed explanations, see http://cbo.gov/ftpdocs/124xx/doc12414/09-12-BudgetControlAct.pdf
Courtesy NAHU
