Fiscal Cliff Explained: How We Got Into This Fiscal Cliff Sequester Mess


If the American economy ends up in economic hell after falling off the "fiscal cliff," the sequester Congress enacted may go down as their collective mortal sin.

The sequestration of federal budget spending beginning on January 1, 2013 refers directly to reducing $55 billion from defense, $38 billion from discretionary programs, and the rest from cuts to entitlements, inclusive of projected savings from debt service.

Where the sequester truly pulls the greatest outrage is from the special interest groups it will most deeply impact. Cutting funding for special needs children or Medicare programs for elderly wellness are minor parts of the total reductions but carry major weight in Congress due to lobbying efforts.

Even defense cuts, when reduced to potential base closings, continue to be portrayed as the ending of entire communities. While base closings will unquestionably impact economic activity no matter where spending is cut, somebody's funding is effected.

The total sequester reduction is $109 billion this year, with a 10-year total of $1.2 trillion. The detailed spending cuts can be reviewed in a 394-page report by the White House that was released to Congress in the Fall of 2012.

What cannot be forgotten is sequestration only looms as a possibility due to the failure of Congress to agree to the $1.6 trillion in reductions in the nation’s projected future debt over the coming decade, which were a condition for raising the national debt ceiling in 2011.

Party leaders, the White House, and most members of Congress supported the debt-ceiling deal: the Budget Control Act passed on a 268-161 vote in the House, with about one-third of House Republicans and one-half of House Democrats opposing it. It passed in the Senate, 74-26, with six Democratic senators and 19 Republican senators opposing it.

Republicans and Democrats intended the automatic spending cuts to be so unpalatable that they'd be forced to make a long-term deficit-reduction deal before January 2013 in order to avoid them. Yet the so-called bipartisan super committee could not find common ground. The committee failed, with Republicans refusing to meet Democrats’ demands to raise taxes in exchange for cuts to domestic programs and entitlements like Social Security and Medicare.

Further negotiations have proven no more productive. Congress has not cut a deal, so they're dragging all of us toward the cliff they built for themselves. There are multiple historical precedents that the sequester will not be enacted.

In U.S. law, sequestration is a procedure by which automatic spending cuts are triggered. Sequestration was first initiated in 1985 by the Gram-Rudman-Hollings Balanced Budget Act. Sequestration is considered such a draconian act that Congress has managed to avoid its implementation each of the prior five times that it loomed as a possibility.

Sequestration can only be avoided if Congress passes legislation that undoes the legal requirement in the Budget Control Act and President Obama signs it before January 2, 2013. Let us hope the President and Congress today can equal the success of their predecessors.

Falling off the "cliff" due to the sunset of the Bush tax cuts might be unavoidable. But being dropped into economic hell due to implementation of the sequester could prove a mortal sin with long-term consequences to all involved.