What is budget sequestration?

Budget sequestration, commonly referred to as simply “sequestration” or the “sequester,” is the sweeping automatic, mandatory, across-the-board federal spending cuts that will occur on January 2. Sequestration will cut over $100 billion out of the FY2013 budget, half from defense spending and half from nondiscretionary domestic spending. Most mandatory entitlement spending, such as Social Security and Medicaid, will not be affected. Over the next nine years, sequestration will cut $1.2 trillion.

What are the potential effects of the sequester?

The sequester will cut a percentage of the budget of most programs and federal agencies, like NIH and the Department of Education. This may lead to the direct unemployment of thousands of federal employees and contractors, and it will result in a significant impact to the U.S. economy. Along with other, non-related tax changes that will go into effect at the start of the year, the sequester would increase and prolong unemployment and cause a recession, according to the Congressional Budget Office.

What has to happen?

President Obama and a bipartisan majority of Congress have expressed a desire to advert the sequester as part of the fiscal cliff negotiations. The President and Congress are negotiating a legislative deal that in theory will defer the budget cuts that will take effect in 2013. If legislation is not passed before January 2, the cuts will go into effect. After January 2, legislation could roll back some of the cuts, but the effects to unemployment and the economy would be more difficult to ameliorate as time passes.