Sequestration Is a Bad Way to Make Budget Cuts

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Thursday, December 07, 2017
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25 Fiscal Lessons

Learned over the course of 25 years, paving the way toward a better economic future.

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To reduce budget deficits, policymakers must make politically painful policy changes by raising taxes on constituents and/or reducing spending on services provided to them. Because different tax increases or spending cuts of the same magnitude do not always have the same impact, policymakers should aim to make informed decisions that target these policy changes rationally.

Making policy this way, however, requires difficult trade-offs and decisions about who will bear the burden. Many politicians seek to avoid the responsibility (and negative political ramifications) of these trade-offs. A common method of doing so is sequestration.

Under sequestration, instead of making specific spending cuts to individual programs, policymakers pass the buck to executive branch agencies by requiring them to reduce spending across the board by a certain percentage. These indiscriminate cuts impact wasteful and effective public programs alike. This inhibits the ability of lawmakers and agency leaders to plan wisely and for the long-term.

When sequestration has been implemented, it has generally been the result of a budgetary trigger that was never intended to go into effect. The most recent example of this is the 2011 Budget Control Act. The BCA capped spending on discretionary programs (those appropriated annually by Congress) and saved more than $900 billion over 10 years. It also tasked a joint congressional committee (known informally as the “super committee”) with identifying an additional $1.2 trillion to $1.5 trillion of budgetary savings. If the committee failed to achieve its legislated savings targets, the additional spending reductions would be enforced by sequestration, primarily on discretionary programs.

This was meant to encourage compromise by elected officials in both parties, but the super committee was never able to reach agreement, and sequestration began in March 2013.

The sequester was particularly damaging because it concentrated cuts on discretionary spending, which includes defense and non-entitlement domestic spending programs. Imposing sequestration on the former impedes the ability of military leaders to allocate resources in the way most effective for national security, while sequestration on the latter restricts spending on critical investments such as infrastructure.

Moreover, these discretionary spending categories contribute the least to our nation’s fiscal challenges. Over the next 20 years, entitlement programs including Social Security, Medicare, and Medicaid are projected to increase by 5.2 percent of the gross domestic product. All other non-interest spending -- the area of the budget most affected by the sequester -- is projected to decrease by 1.3 percent of GDP.
Both because of its indiscriminate nature and because it is aimed at the wrong parts of the federal budget, sequestration is a bad way to make budget cuts. Politicians should instead do the job they were elected to do and make the tough choices necessary to put the budget on a sustainable trajectory.