Understanding “Sequestration”

Last year, Congress and the President worked together to pass the Budget Control Act of 2011 (BCA) to address immediate and long-term fiscal concerns for our nation. (Read Generations United’s full statement on the BCA.) Because Congress couldn’t agree on how to cut the federal budget, automatic across the board cuts – known as sequestration - will kick in in January 2013.

These automatic cuts will be applied in a 50-50 split between defense and non-defense spending. This represents $54.7 billion in domestic spending which will be cut from a wide range of programs, including programs that are vital to children, youth and older adults.

Sequestration will affect both mandatory and discretionary domestic funding sources. Mandatory cuts will include:

• Cuts in Medicare payments to providers and insurance plans; those cuts are limited to 2 percent of such payments in any year, or $11 billion in 2013.  This means that Medicare providers will continue to bill Medicare in the normal way but will be reimbursed at a rate of 98 cents on the dollar.
• About $5.2 billion in cuts in the other mandatory programs, the biggest of which supports farm prices; other affected programs include student loans, vocational rehabilitation, mineral leasing payments, the Social Services Block Grant, and dozens of smaller programs.

Other domestic programs, which are funded through discretionary spending, would face even more drastic cuts of $35.5 billion – or 8.4%. The bulk of the cuts to domestic spending would be to important programs for children, youth and older adults. These include Head Start and K-12 education funding, the Low Income Home Energy Assistance Program (LIHEAP), employment and nutrition programs for older adults, and funding to implement the Affordable Care Act.

(For a listing of projected cuts, see the Coalition on Human Needs’ report Self-Inflicted Wounds: Protecting Families and Our Economy from Bad Budget Choices.)

Congress is currently discussing ways to avoid sequestration, but some proposals would protect defense spending at the expense of even deeper cuts to domestic programs, or even those exempted from cuts under the BCA (such as, Medicare, SNAP, and Temporary Assistance for Needy Families (TANF)).

Generations United urges Congress and the President to protect our nation’s most vulnerable and invest in our country’s future by supporting proposals which would provide adequate revenue to address the needs of our citizens.

Want to stay up-to-date on the federal budget debate? Subscribe to Generations United’s Policy Alerts.