"Sequestration" is a process of automatic, largely across-the-board
spending reductions under which budgetary resources are permanently
canceled to enforce certain budget policy goals. It was first
authorized by the Balanced Budget and Emergency Deficit Control Act
of 1985 (BBEDCA, Title II of P.L. 99-177, commonly known as the
Gramm-Rudman-Hollings Act). Sequestration is of current interest
because it was included as an enforcement tool in the Budget
Control Act of 2011 (BCA, P.L. 112-25). Sequestration can also
occur under the Statutory Pay-As-You-Go Act of 2010 (Statutory
PAYGO, Title I of P.L. 111-139). In either case, certain programs
are exempt from sequestration, and special rules govern the effects
of sequestration on others. Most of these provisions are found in
Sections 255 and 256 of BBEDCA, as amended. Two provisions were
included in the BCA that could result in automatic sequestration:
Establishment of discretionary spending limits, or caps, for each
of FY2012-FY2021. If Congress appropriates more than allowed under
these limits in any given year, sequestration would cancel the
excess amount; and Failure of Congress to enact legislation
developed by a Joint Select Committee on Deficit Reduction, by
January 15, 2012, to reduce the deficit by at least $1.2 trillion.
The BCA provided that such failure would trigger a series of
automatic spending reductions, including sequestration of mandatory
spending in each of FY2013-FY2021, a one-year sequestration of
discretionary spending for FY2013, and lower discretionary spending
limits for each of FY2014-FY2021. In fact, the Joint Committee did
not develop the necessary legislation and Congress did not meet the
January 15, 2012, deadline. Thus, the first automatic spending cuts
under the BCA are now scheduled to take effect on January 2, 2013.
Pursuant to the Sequestration Transparency Act (P.L.112-155), the
Administration issued a report on September 14 that previews the
estimated impact of that sequestration on discretionary and
mandatory spending. Under the Statutory PAYGO Act, sequestration is
part of a budget enforcement mechanism that is intended to prevent
enactment of mandatory spending and revenue legislation that would
increase the federal deficit. This act requires the Office of
Management and Budget (OMB) to track costs and savings associated
with enacted legislation and to determine at the end of each
congressional session if net total costs exceed net total savings.
If so, a sequestration will be triggered. If sequestration is
triggered-either under the BCA or Statutory PAYGO Act-the
exemptions and special rules of Sections 255 and 256 of BBEDCA
apply. Most exempt programs are mandatory, and include Social
Security and Medicaid; refundable tax credits to individuals; and
low-income programs such as the Children's Health Insurance
Program, Supplemental Nutrition Assistance Program, Temporary
Assistance for Needy Families, and Supplemental Security Income.
Some discretionary programs also are exempt, notably all programs
administered by the Department of Veterans Affairs. Also, subject
to notification of Congress by the President, military personnel
accounts may either be exempt or reduced by a lower percentage.
Special rules also apply to several, primarily mandatory, programs.
For example, under Section 256 of BBEDCA, Medicare may not be
sequestered by more than 4%. However, under a sequester triggered
by the BCA, reduction of Medicare is further limited to no more
than 2%.
General
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