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How much does the Sequester Replacement Reconciliation Act of 2012 reduce the deficit?

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Washington, May 9, 2012 | comments
  • Current CBO cost estimate of SRRA: $242.8 billion in deficit reduction

The House plans to consider the Sequester Replacement Reconciliation Act of 2012 (SRRA) on Thursday, May 10. This legislation replaces the deficit reduction from a “sequester” of discretionary spending that is scheduled to occur on January 2, 2013.  This sequester would lower the cap on FY 2013 discretionary spending from $1.047 trillion to $949 billion, achieving $98 billion in budget authority savings.  The House Republican budget proposed to replace that savings with $19 billion from lowering the cap from $1.047 trillion to $1.028 trillion with the remainder of the savings ($78 billion) to be achieved through reforms in mandatory spending through the reconciliation process

The SRRA achieves four times the deficit reduction that would have been achieved from the first year of the discretionary sequester called for under the Budget Control Act of 2011. This deficit reduction is achieved through reforms proposed by six House committees in response to the House-passed budget resolution’s reconciliation instructions. Because the sequester and Reconciliation Act involve multiple types of federal spending the scoring for the Reconciliation Act is complex.

Under current law, the FY 2013 discretionary sequester will take place on January 2, 2013, reducing discretionary budget authority by a little less than $98 billion in FY 2013 ($56 billion in outlays). The remaining $40 billion of the outlay savings would occur over the subsequent nine years. 

CBO is required to conduct their cost estimates based on the law as it is today without making any assumptions about the likelihood of Congress enacting future appropriations. With nearly five months to go before fiscal year 2013 begins, none of the regular appropriations bills have been enacted into law yet, which means there are not enough budgetary resources subject to sequester to fully achieve the $98 billion in savings called for by the sequester. For that reason, CBO’s official estimate is that the current law sequester will reduce outlays by $36 billion in FY 2013 and by $72 billion over the budget window.

The SRRA also includes $315 billion of deficit reduction proposals over this time period. Combined these provisions result in a current CBO estimate of net deficit reduction from the SRRA of $242.8 billion over 10 years.

However, a more realistic estimate would assume the enactment of FY 2013 appropriations and include the full cost of eliminating the FY 2013 discretionary sequester ($97 billion), which would decrease the total amount of savings by $25 billion below what CBO current estimate shows. When these elements are combined with the deficit reduction of $315 billion, a more realistic estimate of the SRRA’s net deficit reduction is $237 billion.

Table 1

Glossary of Key Budget Terms

Budget Authority: Authority provided by law to incur financial obligations that will result in immediate or future outlays of federal government funds. Budget authority may be provided in an appropriation act or authorization act and may take the form of a direct appropriation of funds from the Treasury, borrowing authority, contract authority, entitlement authority, or authority to obligate and expend offsetting collections or receipts. Offsetting collections and receipts are classified as negative budget authority.

Outlays: Spending to pay a federal obligation. Outlays may pay for obligations incurred in a prior fiscal year or in the current year; hence, they flow partly from unexpended balances of prior-year budget authority and partly from budget authority provided for the current year. For most categories of spending, outlays are recorded on a cash accounting basis. However, outlays for interest on debt held by the public are recorded on an accrual accounting basis, and outlays for direct loans and loan guarantees reflect estimated subsidy costs instead of cash transactions.

Sequestration: An enforcement mechanism by which the President orders the cancellation of budgetary resources in amounts sufficient to eliminate a debit on the statutory pay-as-you-go scorecards, or a breach of discretionary caps under the Deficit Control Act, or a deficit calculated under the Budget Control Act. First established in the Deficit Control Act as a means to eliminate deficits and, later, breaches of discretionary spending limits, the sequestration mechanism originally expired in 2006. However, it was implemented again in the Statutory Pay-As-You-Go Act of 2010 as the means to eliminate a debit on a pay-as-you-go scorecard caused by enacted legislation that affects direct spending or revenues. The Budget Control Act of 2011 reinstated the sequestration mechanism to enforce its discretionary spending caps on budget authority—the President will order the cancellation of discretionary budgetary resources for a fiscal year in an amount sufficient to eliminate any breach of those caps in any budget year. The Budget Control Act also implemented a separate sequestration procedure for each fiscal year from 2013 through 2021 to reduce the deficit over that period by at least $1.2 trillion.

Source: CBO Glossary of Budgetary Terms (January 2012) http://www.cbo.gov/sites/default/files/cbofiles/attachments/glossary.pdf

Read CBO’s analysis of the Sequester Replacement Reconciliation Act here.

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