As the deadline approaches on $85 billion in automatic cuts to the federal budget this Friday, there is one question that keeps getting repeated by my listeners and readers - are these cuts real?
Again, I will say that they are real cuts in the short term. Really.
"I thought the cuts were just the automatic growth built in," was one message on Monday morning. "This is actually cutting the current funding?"
As hard as it may be to believe, yes, real budget cuts would be involved in the discretionary budget, which deals basically with everything outside of Medicare and Social Security. These across the board cuts would reduce spending in the current fiscal year, which runs out on September 30.
Now the next question is a bit more tricky - how much would be saved?
That is where things get a little convoluted, but the answer remains the same, there would be less spending in 2013 versus 2012 if the automatic cuts were to stay in effect through the end of the fiscal year.
This is what the Congressional Budget Office says about the sequester:
"The provisions of the Budget Control Act that established automatic procedures to restrain discretionary and mandatory spending are set to take effect on March 1; if fully implemented, they will reduce total funding in 2013 by $85 billion. (The American Taxpayer Relief Act delayed the reduction by two months and reduced it by $24 billion.) CBO estimates that, in 2013, discretionary funding (which is provided through annual appropriations) will decline by $71 billion and funding for mandatory programs (which is not subject to annual appropriations) will be reduced by $14 billion, as a result of those procedures. By CBO’s estimate, budgetary resources for defense (other than spending for military personnel) will be cut by around 8 percent across the board, and nondefense funding that is subject to the automatic reductions will be cut by between 5 percent and 6 percent. According to that estimate, discretionary outlays will drop by $35 billion and mandatory spending will be reduced by $9 billion this year as a direct result of those procedures."
Let's go through it again, more slowly - the CBO says the cuts "will reduce total funding in 2013 by $85 billion," with $71 billion from discretionary spending (outside of Medicare and Social Security) and the other $14 from mandatory spending programs.
Actual spending in the budget would go down by $44 billion. That is what the CBO refers to as "discretionary outlays" ($35 billion) and also "mandatory spending" ($9 billion).
Bottom line: there would be actual budget cuts, and there would be less spending by Uncle Sam as a result of the sequester.
Let's look at another issue, what is known as the "baseline" of the budget. How would the sequester impact the starting point for spending in the future?
Remember, the current budget law (outside of Medicare and Social Security) looks like this when it comes to built-in increases in the discretionary budget in coming years, as set out in the Budget Control Act of 2011:
2012 - $1.043 trillion
2013 - $1.047 trillion
2014 - $1.066 trillion
2015 - $1.086 trillion
2016 - $1.107 trillion
2017 - $1.131 trillion
2018 - $1.156 trillion
2019 - $1.182 trillion
2020 - $1.208 trillion
2021 - $1.234 trillion
These are the spending caps set in law by the Budget Control Act. We are currently in Fiscal Year 2013, where the discretionary budget is $1.047 trillion; this funds everything outside of Medicare and Social Security, and is what the Congress deals with budget-wise each year (the other stuff is on auto pilot).
As you can plainly see, there are budget increases planned for the feds all the way through 2021 at this point in the discretionary budget.
But what happens if the sequester goes into effect? Would those increases just be smaller and/or would there be real cuts?
The budget crunchers here on Capitol Hill say the spending cap for FY 2013 would then be adjusted down to $974 billion.
That is $73 billion below the current funding level, and $69 billion below what was spent in 2012 on the budget.
That is not just a "reduction in growth" in the short term.
So, let's bottom line a few things here - will there be $85 billion in cuts this year? Sort of, in budget authority, but less than that in terms of actual reduced spending ($44 billion according to the CBO.)
Will the budget baseline actually go down? Yes. From $1.047 trillion to $974 billion.
Are these cuts really just a reduction in the current budget level of increase? No. In the short term, these would reduce spending. (It might not reduce spending as much as you want, or more than you want, but that's another argument.)
As for the longer term of this year ten year plan, spending does go up slightly as you can see from the above year-by-year numbers.
More questions. More answers. And probably more questions.
