Will This Be The Year Congress Ends the BCA?


The Sequester has become a proper noun to all in Washington and a bad word to many. The Sequester represents the popular notion of indiscriminate spending cuts that were enacted as part of a deal struck in the summer of 2011 between Biden and McConnell to raise the debt limit while preserving the “Boehner Rule” (i.e., trading $1 in deficit reduction for $1 in debt limit). However, The Sequester that most people think about isn’t really a sequester at all.

Sequestration is the cancelation of budget authority. Budget authority is one type of appropriation provided by Congress. However, the sequester that was triggered by the failure of the Joint Select Committee on Deficit Reduction (aka the “Super Committee”), and that everyone refers to, includes only a small cancelation of budget authority (about $17 billion a year). Most of the revision is either a reduction in spending limits or assumed debt service reductions.

The Budget Control Act brought back limits on discretionary spending that were in place from 1991 until 2002. After the Super Committee failed, these spending limits were reduced by $1.2 trillion – minus debt service and a small amount of deficit reduction achieved by special rules governing a mandatory sequester (this is the only sequester of The Sequester) – spread over the period covering 2013 to 2021 and split equally between defense and nondefense.

This comes out to an additional reduction in the discretionary spending limits of $54 for defense and $37 billion for nondefense applied each year until 2021. The difference in the two numbers is that nondefense has more to give through the mandatory sequester, but at the end of the day the cut is spread equally between the two categories.

The important distinction between these spending limit reductions and an actual sequester is that they are not as indiscriminate as most assume. Rather than an across-the-board reduction in budget authority, these reductions are targeted in appropriations bills passed by Congress. In other words, Congress decides how the additional spending limits are applied. But that doesn’t sound nearly as dramatic. 

Another important consideration here is that the $54 and $37 billion reductions in each category are off of the spending caps in defense and non-defense that were also set by the BCA. As a decent approximation of the total effect of the BCA it's worth revisiting the January 2011 CBO baseline that was published before the sequester. In 2017, real discretionary spending was about $220 billion lower than CBO projected it would be before BCA was enacted and about $24 billion lower than was predicted immediately after enactment. Therefore, relative to baseline adjustments (i.e., inflation) off of 2011 spending levels, real discretionary spending has fallen pretty dramatically. 

As previous posts have mentioned, over the next month budget observers should note how much any revision by Congress might end up being. Congress has never revised the BCA spending upwards in a way that would rollback the initial BCA caps. Congress has only amended the levels adjusted by the failure of the Super Committee. That could very well change this month.