In the raucous debate over the cuts in federal spending, also known as the sequester, which began taking effect Friday, a lot of numbers are being tossed around -- $85 billion, $42 billion, $1.2 trillion. And lots of adjectives, too -- “massive,” “deep,” “severe,” “arbitrary” and more.
You’d think that numbers would be more precise than adjectives, but there’s no agreement on the correct number to describe the size of the spending cuts required by the 2011 Budget Control Act.
CNBC's John Harwood joins Lester Holt for more on the sequester.
The Congressional Budget Office explained last week that while the often-used figure of $85 billion “represents the reduction in budgetary resources available to government agencies this year” – the cash that would be on hand for agencies to spend -- in fact “not all of that money would have been spent in this fiscal year.”
Why is that?
Federal departments and agencies would have used some of that $85 billion to “enter into contracts to buy goods or services to be provided and paid for next year or in subsequent years,” the CBO said.
For instance, if the Navy is buying some submarines or if the Missile Defense Agency is buying new satellites, it may take them a few years to spend the money to do so.
Thus, since not all of the $85 billion would have been spent anyway in the current fiscal year, the CBO said that in fact $42 billion will be the actual size of the cut in outlays in the fiscal year which ends on Sept. 30.
And how large is $42 billion when compared to the total amount of federal outlays?
The federal government’s outlays this fiscal year will total $3.55 trillion, according to the CBO’s latest estimate. Do the arithmetic and you’ll see that $42 billion is 1.16 percent of what the federal government would have spent this year if there had there been no sequester.
A 1.16 percent cut does not seem “massive.”
But the cuts do not apply equally across the board to every single category of federal spending – even though the term “across the board” is often used to describe the cuts.
In reality, the Budget Control Act was designed to shield much federal spending from the spending cuts.
Pablo Martinez Monsivais / AP
The White House is seen through a chain-link fence where the inaugural reviewing stand once stood, Monday, March 4, 2013, in Washington, as the tear down on Pennsylvania Avenue from the inaugural neared completion.
What’s exempt is most mandatory spending -- the spending that goes to Medicare and Social Security for the old and the disabled, Medicaid and SNAP payments (“food stamps”) for the poor, payments to low-income people in the form of tax credits, interest payments on the debt, federal employee retirement benefits, and other categories.
(The sequester does cut Medicare’s payments to hospitals, physicians, and the administrators of certain Medicare services by two percent.)
Since mandatory spending, which accounts for two-thirds of all federal spending, is mostly off limits, the spending cuts are highly concentrated on the remaining third of the budget, what’s called “discretionary spending” – the kind of spending that Congress would normally decide each year in its appropriations bills, sometimes increasing the amount spent on some items and perhaps lowering the amounts spent on others.
An example of discretionary spending: the money that goes to the National Science Foundation, which has an annual budget of about $7 billion and funds research in everything from the stickiness of spider webs to the demise of coral reefs in the Florida Keys.
In percentage terms, the CBO said, the amount available to spend for defense (other than for military personnel) will be cut by about 8 percent and the amount available for nondefense discretionary items will be cut by about 6 percent.
The Obama administration’s Office of Management and Budget has a higher estimate: a reduction in available money of 13 percent for defense programs and 9 percent for nondefense programs for the remaining seven months of this fiscal year.
Defense spending accounted last year for about 18 percent of all federal spending. Under the sequester, defense spending will bear a disproportionately large share of the cuts. And since the law gave President Obama the discretion to exempt military service members’ pay from the cuts (and he did so) the defense cuts will fall heavily on daily operations and maintenance, activities such as training missions for Navy aviators.
Finally, what about that other number that Obama used in his State of the Union address: “about a trillion dollars’ worth of budget cuts”?
Obama was referring to the full 10-year budget forecasting period and assuming that the Budget Control Act will remain in effect for the entire period.
If the automatic spending cut provisions were to remain in effect, they would reduce deficits by at least $1.2 trillion over the 10-year period from 2012 to 2021, the CBO has estimated. Total federal outlays over the next ten years will amount to $45 trillion.
This story was originally published on Mon Mar 4, 2013 10:37 AM EST