NAICU Washington Update

Sequestration: Congress Deals with Buyer's Remorse

September 25, 2012

Congress has gone home for six weeks of campaigning, but the spectre of sequestration looms large. As January 3 – the sequestration trigger day - draws closer, the hand-wringing continues in all quarters of the nation's capital. The heart of the problem is, though, that all parties agreed to the measure a year ago, but now see how damaging the dramatic cuts would be to defense and nondefense programs alike.

So everyone wants to figure out a way to undo it.  But they can’t.  And "everyone" means everyone – House, Senate, White House, Republicans, Democrats, the President.

Sequestration (here's an explanation of the term) comes from the Budget Control Act of 2011, which was a hard-won agreement among the players. That act set spending caps, and created a bipartisan "super committee" charged with finding ways to reduce the national debt by $1.2 trillion over 10 years.  It was a tough - maybe impossible - assignment, so sequestration was built in as a threat to keep everyone on task.  Then famously, last November, the super committee admitted defeat, leaving “everyone” to face the fiscal cliff in January.

On September 14, the White House Office of Management and Budget  issued a report, required under the Sequestration Transparency Act passed earlier this summer.  In it the OMB outlined what the impact of sequestration would be if implemented on the basis of the FY 2013 continuing resolution funding level of $1.047 trillion.  For student aid, Pell Grants are exempt from sequestration, but other student aid programs would suffer an 8.2 percent cut - a $140 million reduction across all of those programs.  Other higher education programs (including TRIO, GEAR UP, strengthening institutions, international and graduate programs) would be cut $153 million.  And students' loans would cost more because of an increase in origination fees, producing $91 million.  The cuts would be effective July 1, 2013, for the 2013-14 award year.

Over the months since the super committee failure, there have been calls to (1) repeal the sequester, (2) repeal the sequester just for defense spending, (3) impose a “balanced approach” by increase taxes to offset cuts, (4) give Congress more time to work out a deal by delaying sequestration for six months, and (5) replace the sequester with a reconciliation process as called for in the House-passed Sequester Replacement Reconciliation Act

When Congress returns for its "lame duck" session after the election, they'll have to do one - or a combination - of these things to avoid the otherwise automatic cuts coming in the New Year.  Many of the Bush-era tax cuts are set to expire December 31, which ensures that some piece of tax legislation will be moving in the lame duck session. Should Congress agree on some sequester escape route via one or more of the above options, that plan could be written into the anticipated tax legislation during the lame duck session.

Meanwhile, all of Washington peers over the cliff.

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