Understanding Sequester

Sequester is the latest most talked about term in the U.S. The measure that promised to avert an almost sure “fiscal cliff” came with its own baggage, the full effect of which is yet only a best estimate.

What is sequestration?

In simple terms, it implies public spending cuts by the Government. It means money sources may dry up or significantly reduced for Government funded schemes, public welfare, and any area the policy makers decide upon.

How much spending will be reduced?

The sequester will trim the sovereign spending budgets by $85 billion up to October 1, 2013 and remaining $1.5 trillion over the next 10 years.

Who will be affected?

Almost everyone will be affected in varying degrees. At a time when the U.S. economy is grappling with unemployment and slowdown, another 750,000 jobs will be axed by the year end. More will follow in the subsequent years. The overall economy will face a slowdown.

Non-priority defense funding will be reduced, impacting almost 800,000 civilian employees. Aviation cuts will affect the airport management. Special education programs, public parks, law enforcement agencies, Department of Agriculture, and loan guarantees to SMEs will feel the heat. Disaster preparedness may be affected as funds to FEMA (Federal Emergency Management Agency) will be thinning. About 600,000 needy kids may be dropped from the Women, Infants and Children programs. Another 700,000 will be out of the Federal Head Start program. Thousands of teachers from the regular programs and special education schemes may lose their jobs.

So far, Medicaid, Social Security, Pell Grants, benefits for veterans, and some welfare schemes for the low-income groups are kept exempted from sequestration.

Who wants it?

The Obama Administration clearly opposes it. Calling it “dumb”, President Obama said, “Washington cannot continually operate under a cloud of crisis. That freezes up consumers. It gets businesses worried. We can't afford these self-inflicted wounds.”

However, the Republicans are strong proponents of sequestration. They have bitterly opposed all propositions on increasing fiscal revenue. Even the Governments recommendation to provide a temporary break from cuts and withdrawing of some tax-breaks met strong opposition.

How did this come about?

The policy makers had been mulling over the possibility for some time as the risk of a fiscal cliff kept become more real. The Budget Control Act of August 2011 proposed the spending cuts. The Congress panel entrusted with the task of introducing the cuts in a milder way could not make much headway. The American Taxpayer Relief Act of 2012, that came into effect from January 2, 2013, was introduced as a partially solution to the fiscal cliff. The Act could only delay the “sequester” by two months. The scheme began operational from March 1, 2013.

In the middle of all the confusion and uncertainty, Obama is hopeful that the Government’s disagreement with the other side could still be resolved in future. He stated, “These cuts are not smart. They will hurt our economy and cost us jobs. And Congress can turn them off at any time - as soon as both sides are willing to compromise.”

Comments 1 comment

HSchneider 3 years ago from Parsippany, New Jersey

Great analysis, EurionConst. The sequestor cuts will soon be felt hard and maybe the Congress will move. I have strong doubts that they will. These people are hardened in their political stances and do not care if their constituents get hurt. That is as long as they can protect their wealthy donors.

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