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.”

    Author

    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 Debt.org 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 bfay@debt.org.

    In debt? We can help!

    • Amount
    • Type
    • Contact

    How much do you owe?

    What can we help you with today?

    Related Articles

    CFPB changes rules regarding payday loans

    Payday Loans Face Tough Rule Changes from CFPB

    The Consumer Financial Protection Bureau has proposed new rules aimed at putting more responsibility on payday loan lenders and their crippling triple-digit interest rates.The CFPB proposals would require lenders to determine before making a loan whether ...

    Continue Reading
    Auto Sales Slow Because of New Legislation

    New Legislation May Slow Record-Breaking Car Sales

    Analysts predict record-setting sales for the automobile industry over the next year, though feuding between government leaders over whether discrimination exists in car financing could slow things down.WardsAuto Dealer Magazine says that new car sales ...

    Continue Reading
    Student Cap on Money

    Borrowers Get Another Way To Repay Student Loan Debt

    The U.S. Department of Education (DOE) announced it was imposing regulations to prevent colleges from steering students to specific debit and prepaid cards for use with federal grant and loan money.The DOE also said that it was dramatically improving ...

    Continue Reading
    Debt is Due Now On Paper

    CFPB Orders Debt Collection Agencies To Refund Millions

    The 77 million Americans pursued and often harassed by debt collection agencies won a moment of relief when the Consumer Financial Protection Bureau (CFPB) ordered the nation’s two largest debt buying companies to stop collecting on $128 million in debt and ...

    Continue Reading
    scam

    Alleged Student Loan Debt Scams Face Lawsuits

    Another round of alarms sounded in the trillion-dollar student loan crisis when the Illinois Attorney General accused two student loan debt settlement firms of scamming borrowers.Illinois Attorney General Lisa Madigan sued First American Tax Defense and ...

    Continue Reading
    CashCall mortgage information

    CFPB Files Lawsuit Against CashCall for Illegal Online Loan Servicing

    The Consumer Financial Protection Bureau (CFPB) sounded the alarm about online loan services, filing a lawsuit against CashCall Inc., for collecting exorbitant amounts of money the bureau says consumers didn't owe.It is the first time the CFPB has sued an ...

    Continue Reading
    Speaker of the House John Boehner speaks before the budget deal

    U.S. House Passes Budget Deal; Senate Likely to Follow Suit

    Democrats finally scored a victory in the U.S. House of Representatives on Thursday, joining Republicans to pass the Bipartisan Budget Act by a stunning margin of 332-94.The unanticipated truce in the neverending battle among House members pushes the bill ...

    Continue Reading
    President Barack Obama speaking

    Federal Government Reopens, Cloud of Uncertainty Passes for Now

    The cloud of financial ruin threatening the U.S. and world economy floated away Wednesday, but it will be back.President Barack Obama and Congress made sure of that when they approved a measure to raise the debt limit and reopen the federal government, ...

    Continue Reading
    Get Help Now

    Overwhelmed with debt? You have options for lower monthly payments!

    x