A Closer Look at Chairman Ryan's "Sequestration" Proposal

On May 7, the House Budget Committee approved a bill designed by Chairman Paul Ryan to alter three aspects of the debt-limit agreement that the President and congressional leaders reached last summer.  The bill would produce a total funding level for discretionary programs in fiscal year 2013 that exactly matches the amount in the House-passed budget resolution — and would enable Congress to boost defense funding above the existing, agreed-upon funding cap.^[1]  

The bill (H.R. 4966) would: a) turn off the automatic cuts (or “sequestration”) scheduled to occur on January 2, 2013, in defense and non-defense discretionary (NDD) programs (while leaving in place the automatic cuts scheduled for various mandatory, or entitlement, programs); b) replace the separate caps on defense and NDD funding for fiscal 2013 with a single cap on overall discretionary funding; and c) set that overall discretionary cap at a level that is $19 billion below the current defense and NDD caps combined and exactly equalsthe overall discretionary funding level in the House budget resolution. ^[2]   The Budget Committee also approved a “reconciliation” bill on May 7 that includes over $300 billion in budget cuts to more than offset the cost of turning off the scheduled 2013 sequestration.

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The bill replaces the separate defense and NDD caps for 2013 with a single overall cap, so it does not mandate an exact division of funding between those two types of programs.  But the Ryan budget plan that the House approved on March 29 — and that Chairman Ryan’s new bill is designed to advance — does spell out that division.  Taken together, the Ryan budget and H.R. 4966 would cut non-defense discretionary funding for 2013 nearly as deeply as if sequestration remained in place, while boosting defense funding above the level that the Budget Control Act (BCA) sets as a cap on defense in the absence of sequestration.

Specifically, instead of NDD being cut $37.2 billion below the BCA cap on NDD funding — as would occur under sequestration — it would be cut $27.3 billion below the cap, or 74 percent as much.  Yet defense funding would be set $8.2 billion above the level that the BCA allows in the absence of sequestration.  This would abrogate the bipartisan compromise that the BCA represents.

On May 7, the House Budget Committee also approved a “reconciliation bill” that would produce over $300 billion in mandatory program savings, with a disproportionate emphasis on cutting programs for lower-income families and individuals.  Chairman Ryan and the House leadership are promoting the reconciliation bill as offsetting the costs of H.R. 4966’s cancellation of sequestration of discretionary programs, and the House Rules Committee has recommended merging H.R. 4966 and the reconciliation bill for House consideration.

Ryan Bill Would Alter Key Features of Budget Control Act

Last summer’s BCA established caps on discretionary funding (e.g., for defense, education, natural resources, general government, assisted housing, biomedical research, veterans’ health, and so on).  Separate caps apply to defense funding and NDD funding.  The caps first became effective for fiscal year 2012, and Congress adhered to them.  They remain in effect through 2021.  Relative to the discretionary funding levels for 2010, as adjusted for inflation, the BCA caps reduce funding by more than $1 trillion over ten years.

The BCA also established a “supercommittee” to negotiate at least $1.2 trillion in deficit-reduction policies, such as specific revenue increases and reductions in entitlement programs.  It included a backup “sequestration” of $984 billion in funding over nine years if the supercommittee failed; those automatic funding cuts, combined with the associated savings on interest payments, were estimated to produce the required $1.2 trillion in deficit reduction.  Though the threat of sequestration was supposed to spur compromise, the supercommittee failed, and the $984 billion sequestration is therefore required by law. 

The BCA prescribes nine annual installments of $109 billion in automatic spending cuts.  The first is scheduled to occur on January 2, 2013, and will cut defense funding, NDD funding, and Medicare and certain other mandatory programs.^[3]

What Would the Ryan Bill Do? 

H.R. 4966 would cancel the defense and NDD sequestrations scheduled for 2013, while leaving in place the sequestrations in Medicare and certain other mandatory programs.^[4]   It would not affect the sequestrations scheduled for 2014 through 2021.   

In addition, the Ryan bill would merge the caps on defense and NDD funding for 2013 into a single cap covering all discretionary funding.  In common parlance, it would “tear down the firewall” between defense and NDD funding.  The bill would also reduce the merged 2013 funding cap by $19 billion. 

Because the Ryan bill merges the two caps, the actual allocation of funding between defense and NDD programs in 2013 would be up to the Appropriations Committee and Congress.  But the clear intention of the House Republican leadership is to write appropriations bills that conform to the defense and NDD levels in the House budget, and the new Ryan bill would remove all statutory obstacles to doing that.

As Table 1 shows, the Ryan approach would raise defense funding $8 billion above the existing defense cap and $56 billion above the scheduled post-sequestration level for defense.^[5]   At the same time, it would lower NDD funding $27 billion below the existing NDD cap, which is $10 billion above the scheduled post-sequestration level.  Taken together, discretionary funding would be $19 billion below the existing caps, but $66 billion above the scheduled post-sequestration levels. 

Like Chairman Ryan, President Obama proposes canceling the sequestration. He would cancel it in all years, not just 2013, and would cancel the mandatory portion of the sequestration as well as the discretionary portion.  His budget proposes significant revenue increases and entitlement cuts, relative to current policy, which would more than offset the cost of canceling the sequestration.  In addition, the President proposes altering the existing defense and NDD caps by reconfiguring them as “security” and “non-security” caps, which would subdivide the existing total in a somewhat different way.  Unlike Chairman Ryan, the President does not propose reducing the total amount of discretionary funding below the existing caps.^[6]

Finally, the Ryan bill is drafted to be contingent upon enactment of the “reconciliation” bill that the House Budget Committee approved on May 7.  (A reconciliation bill is one that, in response to specific directives contained in a congressional budget resolution such as the Ryan budget plan, changes tax or entitlement law.)  The House Rules Committee has recommended merging H.R 4966 and the reconciliation bill into a single bill for the House to consider.  The political point of linking H.R. 4966 to the reconciliation bill is the notion that the savings in the reconciliation bill constitute the justification for turning off the 2013 sequestration, by offsetting the costs of doing so.  As we have written elsewhere, this linkage is essentially political and sets up an unnecessary choice between defense sequestration and cuts in domestic entitlement programs, especially programs that target assistance on low- and moderate-income families.^[7]