Sequestration is Delayed – Now What?

Federal agencies received a two-month reprieve from the across-the-board spending cuts that were scheduled to start Jan. 2 under the Budget Control Act, reports Federal News Radio’s Jason Miller.

But it’s not all good news. Along with the agreement, Congress also extended the federal pay freeze through fiscal 2013.

So what actually in the agreement?

The House, Senate and White House agreed to delay the effects of sequestration until March under the American Taxpayer Relief Act of 2012. The Senate passed the bill Dec. 31 by a vote of 89-8, and the House followed Jan. 1 by a vote of 256-171.

The White House said in a fact sheet that “the agreement saves $24 billion, half in revenue and half from spending cuts which are divided equally between defense and nondefense, in order to delay the sequester for two months. This will give Congress time to work on a balanced plan to end the sequester permanently through a combination of additional revenue and spending cuts in a balanced manner.”

Sequestration would have required agencies to cut $109 billion — split evenly between Defense civilian agency budgets — in 2013. It would have slashed Defense discretionary spending by 9.4 percent and civilian agency spending by 8.2 percent. But now, Congress has two months more to figure out how to avoid the cuts permanently, reports Federal News Radio.

So is this stop-gap measure a good thing?

For the Pentagon, the delay means defense officials won’t be issuing furlough and layoff notices, nor canceling contracts just yet. For the U.S. defense industrial base, it also means additional personnel moves are not required soon, and should keep their stock prices relatively stable.

“A two-month delay isn’t good for the markets,” said Larry Korb of the Center for American Progress. “But no sequester, at least right now, means the Pentagon won’t have to do things like cancel [weapon] contracts, cancel training or put off base maintenance.” Reports Federal Times.

The Congressional Budget Office has scored the new agreement. Here’s what they found:

Govexec Reports, Using “current policy” assumptions shared by CBO and the Joint Taxation Committee, the Office of Management and Budget sees a $107 billion spending cut in the now-enacted bill. Its 10-year deficit reduction would come from:

• $618 billion due to higher taxes on the highest-income Americans and the wealthiest estates;
• $22 billion due to reductions in discretionary spending and a change to tax-preferred savings accounts that pay for turning off sequestration for two months; and
• $24 billion in various health measures that pay for turning off the so-called sustainable growth rate hikes in payments;
• Another $104 billion from lower interest payments on the federal debt.

*All images are from USA Today.