Federal Relations

February 12, 2013

Sequestration: The Bottom Line

While it may seem that the White House has been more focused gun control and immigration over the past several weeks, President Obama is expected to make the economy his central theme and renew his call to avoid sequestration when he delivers his State of the Union tonight. There are just 17 days until the sequester is schedule to take effect and the President is certain to call for new tax revenue to avoid the $85 billion in spending reductions due March 1st even as Republicans reiterate their strong opposition to any new revenues.

Meanwhile, Senate Democrats will soon release a proposal to replace the across-the-board cuts with new revenue and other spending reductions. This is most likely a short-term fix through the end of the calendar year, possibly setting up Congress for another New Year’s battle on spending cuts. But it appears that the Senate proposal is unlikely to get any support from Republicans, which is why so many believe that sequestration will happen on March 1st.

The bottom line: If Republicans cannot get a new deal involving entitlement cuts but without new tax revenue, they prefer accepting sequestration cuts to defense programs as the price of getting some cuts to domestic programs. If Democrats cannot get a deal involving more tax revenue but without entitlement cuts, they prefer accepting sequestration cuts to domestic programs as the price of getting some defense cuts.  The cuts will reduce domestic programs by 5.1 percent and defense by 8 percent, but since they come in the middle of the fiscal year, the impact is closer to 9 percent for nondefense and 13 percent for defense programs. Many federal agencies will likely see 14-day furloughs for employees and layoffs for new hires.