The White House and federal agencies have multiple tools to temporarily postpone most of the impacts of across-the-board spending cuts, known as "sequestration," scheduled to take place on Jan. 2, 2013, if budget talks during the congressional lame-duck session break down, according to a new OMB Watch analysis released Nov. 2.
The cuts were included as a backstop and enforcement mechanism in the Budget Control Act of 2011, which included $1.5 trillion in immediate spending cuts, but also directed Congress to enact another $1.2 trillion in deficit reduction measures by early 2012. If Congress failed, the Budget Control Act achieved the same $1.2 trillion in deficit reduction through across-the-board spending cuts, with $109 billion imposed in 2013 starting in January.
Sequestration was technically triggered when Congress failed to reach an agreement by Jan. 15, 2012, but because the cuts do not begin until 2013, Congress really has until the end of this year to enact new legislation that would cancel or delay the cuts. The chances of that happening, however, are decreasing by the day.
The odds of a budget impasse occurring if President Obama is reelected, and the House continues to be controlled by Republicans in a status-quo election, are high. The two sides are deeply divided over continuing Bush-era tax cuts for the wealthy. Reaching an agreement in November and December will be especially difficult. Republican leaders are unlikely to be able reach across the aisle when they are facing leadership elections in early January. Moreover, there may not be enough time to reach an agreement before the end of the year.
If sequestration occurred and lasted for the rest of the year, it could trigger a recession in early 2013, according to an August analysis by the nonpartisan Congressional Budget Office. Few budget analysts expect sequestration to last that long, however. A more likely outcome is that a budget deal would be struck in early 2013, a major component of which would be retroactive cancellation of sequestration.
A major reason for this is that the politics of reaching a balanced budget agreement become more favorable in January. Most Republicans (and a few Democrats) in Congress have signed a pledge issued by Americans for Tax Reform, an organization led by Grover Norquist, not to raise taxes. Before Jan. 1, any package that extended tax cuts for the middle class, but did not extend Bush-era tax cuts for the wealthiest Americans, would be labeled a tax increase. After Jan. 1, however, that same tax package would be a tax cut. Politically, it would be difficult to oppose a budget package in January that included tax cuts for middle- and working-class Americans and retroactively canceled sequestration.
A key question is: how would the executive branch handle a temporary sequester that lasted for a few weeks in January? One answer is that a substantial portion of federal spending is exempt from sequestration.
A partial list of exempt programs includes: Social Security benefits (old-age, survivors, and disability), all programs administered by the Department of Veterans Affairs (VA), military personnel spending (subject to the president's approval, which he has provided), interest on the federal debt, refundable tax credits, and a variety of low-income programs, including Temporary Assistance for Needy Families (TANF), food stamps (the Supplemental Nutrition Assistance Program, or SNAP) and child nutrition programs, mandatory funding under the Child Care and Development Fund, Medicaid, the Children's Health Insurance Program (CHIP), foster care, and the Supplemental Security Income (SSI) program. However, administrative expenses for these programs are subject to sequestration.
Still, many other programs would remain vulnerable to cuts ranging from eight to 10 percent, according to an early analysis released by the Office of Management and Budget (OMB) in September. Those cuts need not be imposed immediately, however.
According to OMB Watch's new analysis, the White House and executive branch agencies have the power to manage, mitigate, and postpone the negative effects of sequestration for several weeks if they choose. These strategies include:
The administration's authority to mitigate sequestration is not unlimited. It depends on sequestration lasting a relatively short period of time – perhaps no more than a month – and on the president and Congress agreeing to cancel it retroactively to the beginning of the year.
Still, if it is triggered, the worst effects of sequestration may be avoided temporarily – long enough for Congress to consider alternatives to a bad budget deal forced upon them by unreasonable fears of what might happen on Jan. 2.