Five Things You Need to Know About Sequestration

    President Obama and Congress are about to drag the country through another round of fiscal nonsense that likely will reinforce their reputations as indecisive politicians.

    The two sides are shadow-boxing over “sequestration.” If that term sounds familiar, well, it should. It is the bastard child of the fiscal cliff, the self-inflicted crisis that was supposed to mean tax hikes for everybody on Jan. 1, 2013, and $110 billion in spending cuts for domestic and Defense programs.

    Obama and Congress meekly tip-toed around that one at the last minute by handing out tax breaks for everyone – well, everyone making less than $400,000 a year, anyway – but they ran quickly from the problem of slicing $110 billion from the federal budget, punting the deadline to March 1 so they’d have more time to think it through.

    We are less than two weeks away from that deadline, and neither side has thought of anything yet. If you’re betting the over/under on this getting done by March 1, bet the house on the over.

    In the meantime, here are five things you should know about the problem:

    1. What is sequestration?

    Officially, it means an across-the-board cut for domestic and Defense programs, starting March 1. It comes from the word sequester, which means to remove or withdraw into retirement. (Unfortunately, that doesn’t apply to the politicians in Washington.) It applies to some of the domestic and Defense programs that need to be removed or retired to help the United States cut into its $14 trillion debt. If Congress can’t pinpoint which programs and how much to cut them to get to the $110 billion figure by March 1, then across-the-board cuts are supposed to kick in.

    2. Why $110 billion?

    Why not more? Or less? Economists and government officials agreed on that figure based on needing $1.2 trillion cut from the deficit over the next 10 years. Supposedly, that will reduce the debt’s share of Gross Domestic Product to a liveable range.

    3. Who came up with the plan for sequestration?

    This goes all the way back to the summer of 2011, when Congress and Obama traded insults over whether it was better to cut spending or raise the debt ceiling. Congress agreed to raise the debt ceiling, but only if there was a trigger mechanism for automatic spending cuts by Jan. 1, 2013. Both sides thought the combination of deep cuts to Defense and domestic programs would be so unpalatable that surely, someone would produce reasonable legislation as an alternative. Never happened, so they extended the deadline for sequestration to March 1.

    4. Should we be worried if the mandatory cuts actually do kick in?

    Yes … and no. Military leaders are not taking kindly to this and are stacking the deck to make it look bad, if it does. They have submitted some proposed cuts that include suspending the overhaul of an aircraft carrier, postponing deployment of another aircraft carrier and furloughing thousands of civilian workers. Critics say that those are grandstanding proposals.

    The same critics think there is plenty of waste – the Army’s $28 billion battlefield intelligence processor, which has flunked operational tests, is a good example – that can be lopped off without hurting our preparedness. Domestically, some victims of Superstorm Sandy might not get as much relief as they sought, some homeless shelters would have to close, federal workers in areas like food inspections could be furloughed, but major programs like Social Security, the Veterans Administration, Pell Grants, food stamps and the Children’s Health Insurance Program would be exempt.

    5. Is Congress going to sit back and let sequestration happen?

    Democrats don’t want that, but then again, they haven’t put anything on the table to prevent it. They are talking, as always, about a “balanced” approach, meaning some cuts, but more taxes. “The president is ready to do another $1.5 trillion (in cuts) to get up to the $4 trillion target that economists tell us is needed to stabilize the debt over the next 10 years,” White House Chief of Staff Denis McDonough said on ABC’s “This Week.”

    Republicans want lots of cuts and no more taxes. Rep. Paul Ryan, R-Wis., appeared on the same program and didn’t sound optimistic about things changing. “The president gave a speech showing that he’d like to replace (the sequester), but he hasn’t put any details out there,” Ryan said. “That is why I conclude I believe it’s going to take place.”


    Bill Fay
    Staff Writer

    Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at

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