4 Ways Sequestration Gets Worse in 2014

Money Cut in Half

Source: http://www.flickr.com/photos/76657755@N04/

Somewhere along the way, there was a miscalculation. The far-reaching budget cuts known as sequestration were supposed to be so bad that it would serve as a commitment device for both fiscal conservatives and liberals, but Democrats and Republicans were apparently unable to negotiate a political ceasefire. The parties failed to unite against what many considered to be impossibly large reductions to the federal budget, and spending cuts began in March.

The sequester is a monster with roots in the 2011 Budget Control Act. It cuts total federal spending by about $1.1 trillion through 2021 and leaves little unaffected. Major exempted programs include Social Security, Medicaid, and pensions, but defense spending and education programs like Head Start are not spared. In February, the Congressional Budget Office estimated that sequestration would impede the creation or retention of 750,000 jobs and negatively affect GDP growth by about 0.6 percentage points.

When the law went into effect, the sequester became a political hot potato and was used as munition in the October budget and debt ceiling impasse. While many Republican lawmakers can tolerate sequestration spending levels and want to use them to help balance the budget, such deep cuts fly in the face of Democratic fiscal strategy, and the result has been a tense tug-of-war.

The Center for American Progress, a progressive public policy think tank, recently published a report, effectively putting its hands on the rope. The think tank argues that the sequester in 2014 will be much worse than the sequester in 2013 for four primary reasons.

1. Spending cuts just get deeper

“First, and most simply, the sequester makes larger cuts in 2014 than it did in 2013,” says the Center for American Progress.

The American Taxpayer Relief Act, a Frankenstein of tax and spending provisions that became effective January 1, was the bill that delayed sequestration for two months. The act was part of Congress’s awkward resolution to the fiscal cliff impasse, and it included a few provisions affecting sequestration. For example, some of the intended spending cuts to security programs were delayed until 2014.

All told, the act cut 2013 sequestration spending by about $24 billion. In 2014, cuts are expected to total $109 billion. In order to compensate for the two-month delay, the act also reduced the 2014 discretionary spending caps from 3.2 percent to 2.93 percent of GDP for defense, and from 2.89 to 2.76 percent of GDP for non-defense.

2. 2013 cuts have not been fully implemented

“Second, many of the cuts that were legally made this year have not actually been implemented yet,” the Center for American Progress writes.

The 2013 sequester was supposed to cut spending by $85 billion, but reports indicate that spending was actually only cut by about $42 billion. Sequestration directly affects the government’s “budget authority,” or its ability to promise funds. Remember, it is the Treasury that actually pays the bills, but policymakers make appropriations.

The sequester cut $85 billion from the government’s budget authority in 2013 and will cut $109 billion in 2014 — again, the sequester reduced actual outlays in 2013 by $42 billion, and in 2014, it is expected to reduce outlays by $89 billion.

“Businesses and individuals often behave in a similar manner whenever they sign a contract that requires payment to be made at some future date. In these situations, the impacts of sequestration cuts to budget authority will not be felt until later, when the subsequent outlays are also reduced,” according to the Center for American Progress.

3. Patches aren’t a fix

“Third, onetime fixes that mitigated sequestration’s worst impacts in 2013 cannot be used again next year,” reports the Center for American Progress.

Some federal agencies were afforded a degree of flexibility in actually implementing the mandated spending cuts. In most cases, agencies acted to reduce the short-term impact, and in doing so, consumed the onetime use budget gimmick or used funds otherwise reserved for research and development.

The value of investments into R&D is hard to quantify. It costs money to create new technology — something the government has a history of being involved with — but it is hard to attach dollar figures to the outcomes of such investments, and it is hard to determine which investments are the most effective.

Money must be invested in R&D, and it is hard to tell how best to do it, but the money must be invested, and sequestration “took a hatchet” to those investments. This money was instead spent on smoothing the short-term pain of the spending cuts with the hope that budgets would be relaxed in the future.

“But if sequestration becomes the new normal,” says the Center for American Progress, “all of these quick fixes will have only made things worse for the American people.”

4. We’re only seeing the tip of the iceberg

“Fourth, sequestration made cuts to little-noticed but critical functions of government — cuts that will be particularly devastating if they are not reversed soon,” writes the Center for American Progress.

While certain major government programs like pensions, Medicaid, Social Security, and veterans’ benefits dodged sequestration, a “closer look at sequestration reveals a pattern of cuts that are subtly hollowing out critical but often unnoticed public services,” argues the Center for American Progress. “That means the consequences of many sequestration cuts will not be felt immediately; instead, these impacts will only manifest later, when the damage is already severe.”

This includes the cuts to R&D spending at places like the National Institutes of Health but also cuts to the Federal Public Defender’s Office, cuts to immigration offices, and to spending on national security programs. Funding for certain regulatory agencies is also on the chopping block.

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