Super Committee Savings Target Was 150% of Sequestration
Previously, we've voiced a number of concerns about sequestration, including that it is too abrupt, too mindless, too focused on the discretionary budget, and does nothing to improve the long term. What we've failed to mention, however, is that the sequestration also provides far less deficit reduction than what the Super Committee it was meant to back up was charged with saving.
From 2012 through 2021, the Super Committee was charged with identifying $1.5 trillion of deficit reduction, whereas the sequester would save only $1.0 trillion over that time period.
Recall that the Budget Control Act established the Joint Select Committee on Deficit Reduction (the so-called Super Committee) and established that "the goal of the joint committee shall be to reduce the deficit by at least $1,500,000,000,000 over the period of fiscal years 2012 to 2021." The enforcement mechanism to encourage a deal was the across-the-board sequestration currently in effect. Yet that mechanism only saves about two-thirds as much as the Super Committee's $1.5 trillion target over that same period.
So what explains the $500 billion difference between the savings target and what was achieved by the sequester in light of the Super Committee's failure? We identify five main reasons for the difference:
- While the Super Committee goal was to save $1.5 trillion, only $1.2 trillion was needed to fully waive the sequester. The additional $300 billion, had it been achieved, would have allowed for a further increase in the debt ceiling beyond the $2.1 trillion that was already allowed.
- The sequester was meant to save $1.2 trillion total based on a calculation which assumed interest was 18 percent of the total amount. Since the BCA passed, however, CBO's interest rate projections have fallen and interest savings have declined in turn.
- The sequestration cuts "budget authority" (BA), which is the amount appropriated to be spent each year. These funds are not all spent in the year they are appropriated thus resulting in ten-year "outlays," which is the number that actual counts for budgetary effect, lower than ten-year BA.
- Original calculations of the sequester did not account for the fact that there are some interactions with the sequester that end up reducing it's effect. For example, the automatic cuts in Medicare provider payments also result in lower premiums, since premiums are linked to the program's total spending.
- When Congress delayed by two months and reduced the size of the sequester in the fiscal cliff deal, they paid for half of that change with a budget gimmick that allows more people to convert their 401(k) accounts to Roth accounts in order to pay more taxes now but less later.
Together, these factors work to reduce the effect of the sequester down to only two-thirds the size of the Super Committee's savings target.
|Bridge From $1.5 Trillion to $1 Trillion|
|2012-2021 Savings (billions)|
|Super Committee Target||$1,500|
|Intended Difference Between Target and Sequester||-$300|
|Changes in Interest Rates||-$60|
|BA to Outlay Differences||-$80|
|Mandatory Spending Interactions||-$35|
|Roth Conversion Gimmick||-$15|
Source: CBO, CRFB calculations
Note: Lines include interest as a result of the change where appropriate.
In other words, in August of 2011 Congress and the President agreed that they needed to save 150 percent as much as what they will actually save on our current course.
And if policymakers did replace the sequester with 150 percent of the savings, it would go a long way towards improving our long-term fiscal problems.