With the specter of
spending cuts looming imminently, many of my clients have been inquiring as to
the origins and effects of this mysterious phenomenon known as
"sequestration". You also may want to know how sequestration came to
be and how it might impact you and other individuals and businesses around the
country. Economists are predicting the loss of 750,000 to 800,000 jobs
nationwide as a result of the automatic spending cuts. So, who is responsible
for this situation?
According to Rep. Gerry Connolly (D-VA), "sequestration
will disproportionately affect Northern Virginia’s economy, severely harming
the dedicated public servants that live and work in our community and the
private sector companies that support their efforts.” Congressman Connolly further noted “these
arbitrary cuts will affect everything from national parks to national security,
and they will reduce federal investment in things like research and
infrastructure, which actually create jobs.”
Visit http://connolly.house.gov
for more information on Congressman Connolly’s positions.
The sequestration
procedure was adopted by Congress in 1985 under the Gramm-Rudman-Hollings
Deficit Reduction Act of 1985. It basically is a form of automatic spending
cutbacks. Today, sequestration takes on increased importance because of actions
taken by Congress under the Budget Control Act of 2011. In the Act, Congress
established a "super committee" that was given the responsibility of
determining spending cuts and tax increases resulting in reductions in the
federal deficit by $1.2-$1.5 trillion over 10 years. If the super committee
could not reach agreement, then automatic spending cuts of the same amount
would begin to take effect. Despite the threat of automatic spending cuts taking
hold, the super committee failed to reach agreement by the statutory deadline
of November 2011. So, beginning with fiscal year 2013 spending cuts totaling
$1.2 trillion must be made. It was scheduled to commence on January 2, 2013,
but was delayed under the American Taxpayer Relief Act of 2013 until March 1,
2013. The 2013 cuts apply to "discretionary" spending only, and are
divided between reductions to defense ($500 billion) and non-defense ($700
billion).
To avoid
sequestration, Congress must pass legislation that undoes the automatic
spending cuts in that will be approved by Pres. Obama before March 1, 2013.
Advocacy efforts have reached a fever pitch inside the Washington Beltway and
all around the country. Some legislate wars are predicting that a resolution
will be reached before the deadline. Others are threatening that sequestration
will occur.
The cuts are across
the board and automatic, and may not be reconfigured by the Executive Branch.
Some programs are exempt from the cutbacks. For example Social Security,
programs administered by the Department of Veterans Affairs, and Medicare and
Medicaid benefits are exempt from these reductions. For a complete listing of
exempt programs and activities, please visit www.law.cornell.edu/uscode/text/2/905.
Just as we were at
the end of 2012, all of us are waiting with bated breath to hear whether
Congress can reach agreement on this extremely important matter. Interestingly,
Bob Woodward, noted Washington Post reporter, in his recent book The Price of Politics, described the origins
for the latest defense spending cuts as being with the Obama White House.
Clearly, the Republicans were not hoping for cuts in defense spending.
Hopefully, we will have good news (i.e., Congress reached an agreement
acceptable to the President) to report in our next blog.
For more information on planning around
sequestration, please email me at wayne.zell@ofplaw.com or call me at 703-218-2177.