The Latest Official Sequester Numbers

On Friday, the Office of Management and Budget (OMB) released its latest detailed report of how the cuts in sequestration will be allocated. The sequester was reduced by $24 billion under the fiscal cliff deal, so the cuts are slightly smaller as a percentage of full fiscal year spending than under OMB's previous report (with the exception of the Medicare cuts).

The percentages by which each category of spending would be cut differ slightly from the previous estimates of the sequester after the American Taxpayer Relief Act (ATRA) from the Center of Budget and Policy Priorities. We have updated those estimates of the sequester reductions below. Defense spending is facing a nearly 8 percent cut, Medicare spending is still facing a 2 percent cut, and non-defense spending is facing about a 5 percent cut. However, the report notes that because the cuts are squeezed into 7 months, the effective percentage reduction for defense programs is closer to 13 percent, and 12 percent for non-defense programs.

^Source: OMB

The report also warns, in harmony with private forecasts, that the sequester could reduce economic growth in 2013 by 0.5 to 0.7 percent. CBO director Doug Elmendorf previously said that the cuts could reduce growth by about 0.6 percent.

The chart below shows where the cuts would fall relative to their proportion of the budget.

[chart:8213]

^{Source: OMB, CRFB calculations}

Debt on its current path is unsustainable, and deficit reduction needs to be a primary concern for lawmakers are they look to deal with the sequester. A well-designed deficit reduction plan may help grow the economy over the longer term. A report from the Congressional Budget Office estimated that a $2 trillion deficit reduction plan could increase output by nearly one percent by 2023.

Sequestration is a particularly dumb way reduce the deficit. It doesn't distinguish between wasteful and valuable spending, is not slowly phased-in to allow people to prepare and to minimize short-term economic harm, and doesn't address the main drivers of the increase in spending, demographics and health care cost growth. But we cannot send the message that we are unserious about dealing with our debt problem and kick the can further down the road. Hopefully, lawmakers use the sequester as an opportunity to find an agreement with the $2.4 trillion in deficit reduction we need to put debt on a clear downward path.