What is Sequestration, and Why is it Bad?

Government spending continues to exceed government revenues, which means that the national debt keeps growing. Without a change in spending and taxation plans, the national debt will soon reach unprecedented levels. Such debt levels risk triggering a financial crisis.

Dealing with this complicated set of issues resulted in intense political debate during the summer of 2011. The result of the debate was the Budget Control Act of 2011 (known as the BCA). The BCA reduced planned defense spending by about $490 billion and established a congressional committee to recommend at least $1.2 trillion in additional deficit reduction measures.

To spur Congress into action, the BCA stated that if Congress failed to develop a plan, the budget would be cut automatically by about $120 billion per year starting in January 2013. These automatic spending cuts are known as sequestration. These automatic cuts would further reduce funding for defense and other federal agencies.

The Congressional committee charged with developing the plan was unable to reach agreement by its deadline. Since then, Congress has not reached any kind of alternative agreement to reduce the deficit by $1.2 trillion. President Obama has stated that he will veto any attempts by Congress to cancel sequestration without other deficit reduction measures, so sequestration is currently on track to take effect on January 2, 2013.

Under the law, on top of the $490 billion already cut under the BCA, sequestration will reduce the defense budget by another $500 billion—with over $50 billion being cut in 2013 alone. Should sequestration take effect, the Department of Defense will need to immediately reduce military activities around the world, furlough or layoff civilian employees, and scale back or cancel major acquisition programs. These spending cuts would have a significant impact on the size and capability of the military and the defense industrial base. Automatic spending cuts would also cut all domestic agency spending. Overall, economists predict that over 2 million jobs will be lost, the national unemployment rate will go over 9%, and the United States may go into recession.