"Sequestration" refers to a series of automatic, across-the-board, spending cuts to federal government agencies scheduled to take place in fiscal years 2013 through 2021.
Sequestration originated from the August 2011 standoff over the U.S. debt ceiling.
In conjunction with agreeing to raise the debt ceiling, allowing the U.S. Treasury to pay monetary obligations and avoid a default, Congress imposed approximately $2 trillion worth of spending cuts.
$1 trillion in the debt ceiling bill (the Budget Control Act of 2011) and $1 trillion implemented through sequestration.
Sequestration was a measure of last resort.
Congress could replace sequestration cuts with an equal amount of alternate spending reductions. The Budget Control Act of 2011 created a deficit reduction "super committee" charged with reaching consensus on additional budget cuts to avoid sequestration.
However, automatic cuts are effective March 1, 2013.
From 2013 through 2021, the sequestration schedule cuts $1.2 trillion from government agencies, split evenly between defense and domestic programs. More than $500 billion cut from the Defense Department and other national security agencies. The remaining cuts affect a variety of domestic programs, including education, public safety, energy, national parks, food inspections, housing aid, transportation, and law enforcement.
Social Security, Medicaid, and Medicare benefits are exempt from sequestration. Although cuts to Medicare provider payments are on the table, they cannot exceed 2% of current payments.
In 2013, cuts total $85 billion (originally, $109 billion this year, but the American Taxpayer Relief Act of 2012 reduced the required cuts by $24 billion).
The Budget and Economic Outlook: Fiscal Years 2013 to 2023 estimates that in 2013, funds for defense spending (other than spending for military personnel) will cut about 8%, and non-defense spending subject to automatic reductions will cut between 5% and 6%.
Federal funding for the current fiscal year expires on March 27, 2013. The federal government reached its $16.394 trillion debt ceiling limit at the end of 2012. Congress subsequently suspended the debt ceiling limit until May 19, 2013, although the U.S. Treasury has some ability to continue operations beyond that date.
Chris Bryant, MBA, RFC® is founder & CEO of Bryant Wealth Management, Inc. Bryant provides independent, fee-only, financial planning services for individual investors. Since 1999, Chris has devoted himself to helping people make money, save money, protect money, have convenience and peace of mind. He is the author of the new book, Personal Financial Planning. Connect with Chris by E-mail or call toll-free 1-800-980-3048.
Chris Bryant is an American financial advisor.