Where the Axe Will Fall: A Detailed Look at the Sequester

This afternoon, the OMB released its legally required report on the $1.2 trillion sequester, detailing how and where the cuts would fall on the various programs that would take a hit. The nearly 400 page report goes account by account showing what and how much programs are cut and what is exempt, but the overview for FY 2013 comes early on in the report.

Overall, the sequester will reduce budget authority in FY 2013 by $109 billion. Here's how it falls:

  • Defense: Mandatory defense spending, a tiny sliver of the defense budget, will be cut by 10 percent ($68 million). At the same time, discretionary defense spending, 99.9% of the defense budget, would take only a 9.4 percent hit. Why? The discretionary does take a 10 percent cut ($54.6 billion) off its FY 2013 base defense spending of $546 billion. But the $54.6 billion cut is applied to that base with war spending and unobligated balances from previous years added in and military personnel accounts excluded (as the President has authority to do). Since the new base is larger, the percentage reduction is lower.
  • Non-Defense Discretionary: Non-defense discretionary (NDD) spending is cut by 8.2 percent, or $38 billion. The original cut is actually 7.6 percent, but that is applied to base NDD spending before exempted accounts are factored in. Once those exemptions are accounted for, the cut is 8.2 percent.
  • Other Mandatory Spending: In general, low-income mandatory programs are exempt from the sequester, as well as Social Security. That leaves a smaller sliver of the budget to work with, a sliver that includes agriculture and education spending among other things. The total cut is 7.6 percent, or about $6 billion.
  • Medicare Spending: Medicare is one of the few big ticket mandatory programs that is subject to the sequester; however, its cuts are limited to two percent of provider payments. The total cut is about $11 billion. 
 

Source: OMB

A few issues over the sequester are also resolved in this report. As expected, military personnel accounts are exempted, and President Obama has already requested that they be. Second, the report makes clear that war spending is included in the sequester; however, as we pointed out previously, Congress could get around this trick: since war spending is not capped, lawmakers could appropriate an amount above where they want and have the sequester cut spending down to where they actually desire. This would not change the savings from the sequester, but it would increase spending overall, so it is a gimmick that should be avoided.

Overall, the report is an interesting, if extremely technical and detailed, look at one aspect of the fiscal cliff. But knowing how the sequester will affect the budget is much less important than agreeing to a plan to replace it and the rest of the cliff. As CRFB MacGuineas Maya Macguineas said in a press release on the report:

There is no good reason to make deep across-the-board cuts like these while doing nothing to control the growth of our entitlement programs...We need to replace the fiscal cliff with a thoughtful and gradual plan to put our debt on a downward path and our economy on an upward one.

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