The Sequester and War Spending
An article in The Hill warns that war spending may be in jeopardy because of the sequester. Apparently, the Pentagon has reversed its position on the sequester's application to Overseas Contingency Operation (OCO) spending, now saying that it would be affected. Previously, it had said that the sequester would exempt spending for the war in Afghanistan.
First, it seems that the Budget Control Act does call for war spending to be hit by the sequester, although it is not crystal clear. The defense portion of the automatic cuts applies to function 050, budget code for much of the Department of the Defense (there is also some war spending in the non-defense portion). Although spending on the wars overseas is generally considered separately from the Pentagon's budget, it is lumped into that function; thus, that spending looks like it could be subject to the roughly ten percent cut that will hit defense spending on January 2, 2013.
Still, war spending has an advantage that other defense spending does not: it has no cap on spending. Other discretionary spending will be taken well below scheduled levels since their spending by law cannot exceed certain amounts. War spending, however, can be set at whatever level Congress desires without being out of order in the budget process. Thus, to get around the sequester, lawmakers could simply appropriate money in 2013 above and beyond what they actually want for OCO such that the sequester would bring those levels down to the "desired" amount. For example, if they wanted $80 billion for OCO, they could set a level of $89 billion and allow the level to be automatically brought down to $80 billion.
Of course, this would be a gimmicky way to deal with it, but considering the uncertainty and confusion on the issue, it's not clear how "exempting" or including OCO spending in the sequester would affect the budget.
Sequester and War Spending
The same gimmick could work in FY 2013 for the whole defense budget. As Todd Harrison writes here:
As the law is written, the FY 2013 sequestration will cut $52 billion from the DoD budget even if
Congress enacts a budget that already has $52 billion in cuts. To avoid a double reduction,
Congress would need to appropriate $472 billion for DoD and then add a provision at the end of the
act that raises all accounts by a uniform amount of roughly 11 percent, bringing it back up to $525
billion. Sequestration would then cut roughly 10 percent across the board, bring it back down to
$472 billion. By raising all accounts by 11 percent and then cutting them by 10 percent the budget
in each account would end up where Congress intended, thus allowing the cuts to be targeted
without modifying the BCA.
Only after 2013, when the sequester is calculated by the amount of spending over the cap would this move not work for the whole defense budget. Or I am missing something?
Ben Friedman
bfriedman@cato.org
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