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A More Realistic Look at Sequestration

In a recent release, the Bipartisan Policy Center (BPC) estimates that the automatic cuts (“sequestration”) in defense funding scheduled for next January could shrink that funding by 14.7 percent in 2013.  That figure, however, is based on several very questionable assumptions that essentially amount to a worst-case scenario.

We agree with BPC on the dollar size of the scheduled defense cut:  almost $55 billion.  But, based on the law and what we regard as more reasonable assumptions, our estimate of the percentage cut is much smaller than BPC’s:  9.5 percent.  (Both percentage figures assume that the President exercises his discretion to exempt military personnel funding from cuts; without this exemption, we estimate a 7.5 percent defense cut.)

BPC’s percentage figure is much larger than ours in part because BPC essentially assumes that, even with sequestration looming in January, the Defense Department and other federal agencies will proceed full-speed-ahead in the first quarter by committing one-quarter of their total annual funding in those months.  If they do that, they’ll have to squeeze the entire $55 billion funding cut into the remaining three-fourths of the fiscal year.

We think that’s quite unlikely.  Agencies know sequestration is scheduled, and they know it would be much more prudent for them to obligate funds at a slower rate during October-December in order to spread the cuts over the entire fiscal year.

Even more questionable, BPC assumes that Congress will enact legislation to alter the Budget Control Act (BCA) by protecting war funding in a way that forces even bigger cuts in the rest of the defense budget — namely, by exempting war funding from sequestration.  Based on this assumption, BPC removes war funding from the base that it uses to calculate the percentage cut under sequestration.  If Congress exempts war funding, sequestration will need to take a bigger bite out of the rest of the defense budget to produce the required $55 billion in defense savings.

But for that to occur, Congress would have to change the sequestration rules in the BCA.  And if gridlock leads to sequestration actually taking effect, then it’s quite unlikely that Congress would have succeeded in passing legislation to do that.  Moreover, as our analysis of sequestration explains, if Congress wants to protect war funding, it can readily do so in a way that does not require making deeper cuts elsewhere in defense and does not require amending the Budget Control Act.  Congress can simply raise war funding this fall above the President’s proposed level by enough to offset the cut in war funding that will occur under sequestration, so that the post-sequestration level of war funding ends up at the President’s requested level.  This effectively shields war funding without increasing the percentage cut that sequestration causes in the rest of the defense budget.

Congress has this option because the Budget Control Act’s funding caps do not apply to war funding.  We think Congress is more likely to take this option than to enact legislation exempting war funding from sequestration and thereby making the rest of defense take a bigger hit.

To be sure, cutting $55 billion from defense programs will hurt.  So will the required $16 billion cut in certain entitlement programs such as Medicare.  And so will the required $39 billion cut in non-defense discretionary programs — an area of the budget already hit in the past few years — which would constitute an 8.4 percent reduction in affected programs.  A balanced deficit-reduction package would be far superior to sequestration, which is not a sound way to govern.

But, when it comes to sequestration, we should take a realistic look at what it means, not one based on worst-case scenarios that won’t likely come to pass.