Understanding the Sequestration Cuts

February 26, 2013

It appears increasingly likely that Congress and the President will not reach agreement on preventing the sequestration cuts, but let us not yet lose hope that they will do so. So we should at least understand what they are. The total is $1.1 trillion over the next 10 years. For this year, about $85 billion will be cut.

The cuts are apportioned equally between defense and domestic discretionary spending plus Medicare. “Domestic discretionary” means programs like WIC, Head Start, TSA, the FBI, and food inspections.

Defense will be cut by 10% this year and declining amounts in future years (e.g. 8.5% in 2021). Medicare payments to doctors, hospitals, nursing homes and other providers will be cut by 2% a year; services will not be eliminated and seniors and the disabled will not be cut off the program. Entitlement programs like Social Security, Medicaid, SSI (Supplemental Security Income), TANF (Temporary Aid to Needy Families) and Food Stamps will not be cut. Discretionary domestic will be cut by 7.8% this year, declining to 5.5% in 2021.

Who gets cut by how much this year? NIH (National Institutes of Health) is cut $1.6 billion, CDC $323 million, and FDA $206 million. Head Start is cut $406 million and special education is $840 million. Public Housing is cut $1.94 billion and 600,000 women and infants will be cut off WIC. Long-term unemployment benefits would be cut by 9.5% for 3.5 million long-term unemployed workers.

GDP growth will be slowed. By about 0.6%, in other words if the economy was scheduled to grow by 2%, it will now grow by 1.4%.

Where are the parties? Democrats and President Obama have suggested a mix of revenue increases by closing tax loopholes and domestic and defense cuts. Republicans have suggested exempting defense from the cuts and adding domestic entitlement programs such as Food Stamps and Medicaid to the list of programs to be cut.

Prepared by: Lucien Wulsin, ITUP,
February 26, 2013

See CBO, Estimated Impact of Automatic Budget Enforcement Procedures Specified in the Budget Control Act (CBO, September 12, 2011; and http://www.businessinsider.com/sequestration-cuts-2013-2#up-to-38-million-people-receiving-emergency-unemployment-compensation-benefits-will-see-their-benefits-slashed-by-as-much-as-94-percent-13 and http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/20/the-sequester-absolutely-everything-you-could-possibly-need-to-know-in-one-faq/