Budget sequestration is a provision of United States law that causes an across-the-board reduction in certain kinds of spending included in the federal budget. Sequestration involves setting a hard cap on the amount of government spending within broadly defined categories; if Congress enacts annual appropriations legislation that exceeds these caps, an across-the-board spending cut is automatically imposed on these categories, affecting all departments and programs by an equal percentage. The amount exceeding the budget limit is held back by the Treasury and not transferred to the agencies specified in the appropriation bills. [1] The word sequestration was derived from a legal term referring to the seizing of property by an agent of the court, to prevent destruction or harm, while any dispute over said property is resolved in court.
The term "budget sequestration" was first used to describe an enforcement procedure of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA) designed to keep Federal deficits below a maximum level limit. The hard caps were abandoned and replaced with a PAYGO system by the Budget Enforcement Act of 1990, which was in effect until 2002. Sequestration was later included as part of the Budget Control Act of 2011, which resolved the debt-ceiling crisis; the bill set up a Congressional debt-reduction committee and included the sequestration as a disincentive to be activated only if Congress did not pass deficit reduction legislation. However, the committee did not come to agreement on any plan, activating the sequestration plan. The sequestration was to come into force on January 1, 2013 and was considered part of the fiscal cliff, but the American Taxpayer Relief Act of 2012 delayed it until March 1 of that year.
Budget sequestration was first authorized by the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA, Title II of Pub. L. 99-177). This is colloquially referred to as the Deficit Control. [2] They provided for automatic spending cuts (called "sequesters") if the deficit exceeded a set of fixed deficit targets. The process for determining the amount of the automatic cuts was found unconstitutional in the case of Bowsher v. Synar, 478 U.S. 714 (1986) and Congress enacted a reworked version of the law in 1987. [3] Gramm-Rudman failed, however, to prevent large budget deficits. The Budget Enforcement Act of 1990 supplanted the fixed deficit targets.
From 1990 until 2002, and again since 2010, Congress has operated under a system called PAYGO, under which any new government spending needs to be offset by savings from (or cuts to) current programs.
In the initial PAYGO regimen, enacted in the Omnibus Budget Reconciliation Act of 1990 (OBRA '90), by statutory requirement, if legislation enacted during a session of Congress had the effect of increasing the projected deficit for the following year, a sequestration would be triggered. These rules were in effect from FY1991-FY2002. [4] Enacted in 1990, it was extended in the Omnibus Budget Reconciliation Act of 1993 and the Balanced Budget Act of 1997.
Beginning in 1998, in response to the first federal budget surplus since 1969, Congress started enacting, and the President signing, increases in discretionary spending above the statutory limit using creative means such as advance appropriations, delays in making obligations and payments, emergency designations, and specific directives. [5] While staying within the technical definition of the law, this allowed spending that otherwise would not be allowed. The result was emergency spending of $34 billion in 1999 and $44 billion in 2000.
The PAYGO statute expired at the end of 2002. After this, Congress enacted President George W. Bush's proposed 2003 tax cuts (enacted as the Jobs and Growth Tax Relief Reconciliation Act of 2003), and the Medicare Prescription Drug, Improvement, and Modernization Act. [6] The White House acknowledged that the new Medicare prescription drug benefit plan would not meet the PAYGO requirements. [7] The PAYGO system was reestablished as a standing rule of the House of Representatives (which does not have the force of law) on January 4, 2007 by the Democratic-controlled 110th Congress, [8] [9] [10] but less than one year later, facing widespread demand to ease looming tax burdens caused by the Alternative Minimum Tax, Congress abandoned its pay-go pledge. [11] The point of order was also waived for the Economic Stimulus Act of 2008 passed during the Bush administration, which included revenue reducing provisions and increases in spending that increased the deficit. At the beginning of the 111th Congress, PAYGO was modified by including an "emergency" exemption, which was provided for the American Recovery and Reinvestment Act of 2009 during the Obama administration. [12]
In 2010 President Obama signed the Statutory Pay-As-You-Go Act into law, making PAYGO again mandatory. [13]
In 2011, sequestration was used in the Budget Control Act of 2011 (Pub. L. 112-25) as a tool in federal budget control. [2] This 2011 act authorized an increase in the debt ceiling in exchange for $2.4 trillion in deficit reduction over the following ten years. This total included $1.2 trillion in spending cuts identified specifically in the legislation, with an additional $1.2 trillion in cuts that were to be determined by a bipartisan group of Senators and Representatives known as the "Super Committee" or officially as the United States Congress Joint Select Committee on Deficit Reduction. The Super Committee failed to reach an agreement. In that event, a trigger mechanism in the bill was activated to implement across-the-board reductions in the rate of increase in spending known as "sequestration". [14]
The Sequestration Transparency Act of 2012 (Pub. L. 112-155) requires the president to submit a report to Congress on a potential sequestration which may be triggered by the failure of the "Super Committee" to propose and for Congress to enact, a plan to reduce the U.S. Federal Budget by $1.2 trillion as required by the Budget Control Act. [15] The report – which was issued September 14, 2012, and was close to 400 pages long – provided the warning that "sequestration would be deeply destructive to national security... and core government functions". [16]
The start of the sequestration was delayed from January 2, 2013 to March 1, 2013 by the American Taxpayer Relief Act of 2012, which was passed by both houses of Congress on January 1, 2013 as a partial resolution to the fiscal cliff crisis. [17] The bill also lowered the sequestration cap for 2014 to offset the two-month delay in 2013. Also, for 2013 only, certain "security" funding such as homeland security and international affairs were included in the sequestration cut in order to lessen the cuts to defense. [18]
In December 2013, the Bipartisan Budget Act of 2013 increased the sequestration caps for fiscal years 2014 and 2015 by $45 billion and $18 billion, respectively, [19] in return for extending the imposition of the cuts to mandatory spending into 2022 and 2023, and miscellaneous savings elsewhere in the budget. [20]
The Budget Control Act of 2011 set limits on discretionary spending, with separate pools for defense and non-defense spending. The act specified one set of caps to be enforced if the Joint Select Committee on Deficit Reduction would produce a plan to reduce deficits by $1.2 trillion over 10 years, and Congress would enact it by January 15, 2012; if this did not happen, "automatic enforcement procedures" would impose a lower set of caps. Because the Joint Select Committee on Deficit Reduction did not come to agreement on any plan, the lower caps went into effect. The values in the table below reflect these lower caps.
The BCA column shows the discretionary caps in the original Budget Control Act, as estimated in 2012. (Some of the automatic spending reductions target mandatory spending, leading to some fluctuation in estimates of the discretionary funding.) The actual caps, as modified by subsequent legislation, are also shown. [21]
| Fiscal year | BCA (billions) [21] | Actual (billions) |
|---|---|---|
| 2012 | $1,043 | $1,043 |
| 2013 | $1,047 | $1,043 (American Taxpayer Relief Act of 2012) [22] |
| 2014 | $973 | $1,012 (Bipartisan Budget Act of 2013) [23] |
| 2015 | $994 | $1,014 (Bipartisan Budget Act of 2013) [23] |
| 2016 | $1,016 | $1,067 (Bipartisan Budget Act of 2015) [24] |
| 2017 | $1,040 | $1,070 (Bipartisan Budget Act of 2015) [24] |
| 2018 | $1,066 | $1,208 (Bipartisan Budget Act of 2018) [25] |
| 2019 | $1,093 | $1,244 (Bipartisan Budget Act of 2018) [25] |
| 2020 | $1,120 | |
| 2021 | $1,146 |
The Gramm–Rudman–Hollings Balanced Budget and Emergency Deficit Control Act of 1985 and the Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987 were the first binding spending constraints on the federal budget.
The United States budget process is the framework used by Congress and the President of the United States to formulate and create the United States federal budget. The process was established by the Budget and Accounting Act of 1921, the Congressional Budget and Impoundment Control Act of 1974, and additional budget legislation.
PAYGO is the practice in the United States of financing expenditures with funds that are currently available rather than borrowed.
The Budget Enforcement Act of 1990 (BEA) was enacted by the United States Congress as title XIII of the Omnibus Budget Reconciliation Act of 1990, to enforce the deficit reduction accomplished by that law by revising the federal budget control procedures originally enacted by the Gramm–Rudman–Hollings Balanced Budget Act. The BEA created two new budget control processes: a set of caps on annually-appropriated discretionary spending, and a "pay-as-you-go" or "PAYGO" process for entitlements and taxes.
The United States budget comprises the spending and revenues of the U.S. federal government. The budget is the financial representation of the priorities of the government, reflecting historical debates and competing economic philosophies. The government primarily spends on healthcare, retirement, and defense programs. The non-partisan Congressional Budget Office provides extensive analysis of the budget and its economic effects. CBO estimated in February 2024 that Federal debt held by the public is projected to rise from 99 percent of GDP in 2024 to 116 percent in 2034 and would continue to grow if current laws generally remained unchanged. Over that period, the growth of interest costs and mandatory spending outpaces the growth of revenues and the economy, driving up debt. Those factors persist beyond 2034, pushing federal debt higher still, to 172 percent of GDP in 2054.
The United States federal budget is divided into three categories: mandatory spending, discretionary spending, and interest on debt. Also known as entitlement spending, in US fiscal policy, mandatory spending is government spending on certain programs that are required by law. Congress established mandatory programs under authorization laws. Congress legislates spending for mandatory programs outside of the annual appropriations bill process. Congress can only reduce the funding for programs by changing the authorization law itself. This normally requires a 60-vote majority in the Senate to pass. Discretionary spending on the other hand will not occur unless Congress acts each year to provide the funding through an appropriations bill. Expenditure is often influenced by Federal Reserve advisory.
The National Commission on Fiscal Responsibility and Reform was a bipartisan Presidential Commission on deficit reduction, created in 2010 by President Barack Obama to identify "policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run". The 18-member Commission, consisting of 12 members of Congress and six private citizens, first met on April 27, 2010. A report was released on December 1, recommending a combination of spending cuts and tax increases.
The 2012 United States federal budget was the budget to fund government operations for the fiscal year 2012, which lasted from October 1, 2011 through September 30, 2012. The original spending request was issued by President Barack Obama in February 2011. That April, the Republican-held House of Representatives announced a competing plan, The Path to Prosperity, emboldened by a major victory in the 2010 Congressional elections associated with the Tea Party movement. The budget plans were both intended to focus on deficit reduction, but differed in their changes to taxation, entitlement programs, defense spending, and research funding.
The United States federal budget consists of mandatory expenditures, discretionary spending for defense, Cabinet departments and agencies, and interest payments on debt. This is currently over half of U.S. government spending, the remainder coming from state and local governments.
The Path to Prosperity: Restoring America's Promise was the Republican Party's budget proposal for the federal government of the United States in the fiscal year 2012. It was succeeded in March 2012 by "The Path to Prosperity: A Blueprint for American Renewal", the Republican budget proposal for 2013. Representative Paul Ryan, Chairman of the House Budget Committee, played a prominent public role in drafting and promoting both The Path to Prosperity proposals, and they are therefore often referred to as the Ryan budget, Ryan plan or Ryan proposal.
In 2011, ongoing political debate in the United States Congress about the appropriate level of government spending and its effect on the national debt and deficit reached a crisis centered on raising the debt ceiling, leading to the passage of the Budget Control Act of 2011.
The Joint Select Committee on Deficit Reduction, colloquially referred to as the Supercommittee, was a joint select committee of the United States Congress, created by the Budget Control Act of 2011 on August 2, 2011. This act was intended to prevent the sovereign default that could have resulted from the 2011 United States debt-ceiling crisis. The objective of the committee was to develop a deficit reduction plan over 10 years in addition to the $917 billion of cuts and initial debt limit increase of $900 billion in the Budget Control Act of 2011 that avoided a U.S. sovereign default. The committee recommendation was to have been subject to a simple vote by the full legislative bodies without amendment; this extraordinary provision was included to limit partisan gridlock. The goal outlined in the Budget Control Act of 2011 was to cut at least $1.5 trillion over the coming 10 years, therefore bypassing Congressional debate and resulting in a passed bill by December 23, 2011. On November 21, the committee concluded its work, issuing a statement that began with the following: "After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline." The committee was formally terminated on January 31, 2012.
The Budget Control Act of 2011 is a federal statute enacted by the 112th United States Congress and signed into law by US President Barack Obama on August 2, 2011. The Act brought conclusion to the 2011 US debt-ceiling crisis.
The 2013 United States federal budget is the budget to fund government operations for the fiscal year 2013, which began on October 1, 2012, and ended on September 30, 2013. The original spending request was issued by President Barack Obama in February 2012.
Deficit reduction in the United States refers to taxation, spending, and economic policy debates and proposals designed to reduce the federal government budget deficit. Government agencies including the Government Accountability Office (GAO), Congressional Budget Office (CBO), the Office of Management and Budget (OMB), and the U.S. Treasury Department have reported that the federal government is facing a series of important long-run financing challenges, mainly driven by an aging population, rising healthcare costs per person, and rising interest payments on the national debt.
The United States fiscal cliff refers to the combined effect of several previously-enacted laws that came into effect simultaneously in January 2013, increasing taxes and decreasing spending.
The American Taxpayer Relief Act of 2012 (ATRA) was enacted and passed by the United States Congress on January 1, 2013, and was signed into law by US President Barack Obama the next day. ATRA gave permanence to the lower rates of much of the "Bush tax cuts".
As a result of the Budget Control Act of 2011, a set of automatic spending cuts to United States federal government spending in particular of outlays were initially set to begin on January 1, 2013. They were postponed by two months by the American Taxpayer Relief Act of 2012 until March 1 when this law went into effect.
The 2014 United States federal budget is the budget to fund government operations for the fiscal year (FY) 2014, which began on October 1, 2013 and ended on September 30, 2014.
The Bipartisan Budget Act of 2013 is a federal statute concerning spending and the budget in the United States, that was signed into law by President Barack Obama on December 26, 2013. On December 10, 2013, pursuant to the provisions of the Continuing Appropriations Act, 2014 calling for a joint budget conference to work on possible compromises, Representative Paul Ryan and Senator Patty Murray announced a compromise that they had agreed to after extended discussions between them. The law raises the sequestration caps for fiscal years 2014 and 2015, in return for extending the imposition of the caps into 2022 and 2023, and miscellaneous savings elsewhere in the budget. Overall, the bill is projected to lower the deficit by $23 billion over the long term.
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