October 1 of this year marks the beginning of fiscal year (FY) 2016 and the return of the sequester on discretionary (appropriated) spending. No longer does the sequester require across-the-board cuts to such spending, but it does mandate lower topline levels for both defense and non-defense discretionary spending, under which appropriators determine exactly where to spend money.
The sequester will reduce discretionary appropriations by $91 billion in FY 2016 and result in the spending caps rising by only $2 billion from this year (FY 2015). If lawmakers adhere to the sequester caps, discretionary spending will reach a modern-era low as a share of GDP in just two years and continue to decline after that.
President Obama, as he has in every budget since the failure of the Super Committee, would repeal part of the sequester. While the budget does not identify specific savings to pay for the sequester, it includes enough cuts to mandatory spending and new revenue to offset the sequester, and indicates that it would be offset "by cutting inefficient spending, and closing tax loopholes." Lawmakers should follow a similar approach in any efforts to roll back sequestration this year, replacing all resulting costs with other cuts to mandatory spending and/or new revenues. Replacing the cuts mandated by sequestration with savings from specific changes in mandatory spending programs and revenues, particularly policies which result in savings that grow over time, is consistent with the original purpose of sequestration and would represent sound economic and fiscal policy.
Like last year, the budget repeals the entire non-defense sequester in 2016 and provides the same dollar amount of relief to defense, which would roll back about 70 percent of the defense cuts. The 2016 relief would total about $75 billion. After that, the budget would replace less and less of the sequester over time, with the relief falling to $40 billion in 2021, the last year the discretionary sequester is technically in effect.