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Backgrounder: Questions and answers about sequester in U.S.

English.news.cn   2013-03-01 13:44:16            

WASHINGTON, Feb. 28 (Xinhua) -- The sequester, or across-the-board automatic spending cuts for the U.S. federal government, is set to take effect on March 1.

Following are four questions and answers about the sequester.

1. What is the so-called sequester?

In August 2011, President Barack Obama signed into law the Budget Control Act, bringing conclusion to the 2011 U.S. debt-ceiling crisis, which had threatened to lead the country into sovereign default on Aug. 3, 2011.

The act specified 917 billion U.S. dollars of cuts over 10 years in exchange for the initial debt limit increase of 900 billion dollars and established the Joint Select Committee on Deficit Reduction, or the "super committee," to produce a deficit reduction bill with some 1.2 trillion dollars in cuts by the end of 2011.

If the 12-member congressional committee, which comprises six congressmen from each party, failed to put forward the bill, a punitive mechanism, or the so-called sequester, would operate, as of Jan. 1, 2013, to cut government spending by 1.09 trillion dollars each fiscal year. The sequester was deferred till March 1 to avoid the "fiscal cliff."

2. Is the sequester a new phenomenon in the United States?

No. In the 1980s and 1990s, the Reagan and Clinton administrations proposed and operated similar automatic cut mechanisms for deficit reduction. The sequester draws on their practice and experience.

3. Why does the U.S. federal government need a 85 billion-dollar cut in spending?

Under the Budget Control Act of 2011, government spending cuts of roughly 1.09 trillion dollars will be made from January 2013 to the end of September, or the end of the current fiscal year.

As agreed by Democrats and Republicans in January in their negotiations to resolve the so-called "fiscal cliff," a short-term "fiscal cliff" deal, which shifted about 24 billion dollars of spending cuts into future government appropriations bills, left 85 billion dollars in government outlays cuts to begin in March.

4. What influence will government spending cuts exert?

From the perspective of government deficit reduction, the sequester will help improve the fiscal conditions of the U.S. federal government. The Congressional Budget Office (CBO) predicted a deficit of 845 billion dollars for the federal government, a figure to fall below 1 trillion dollars for the first time during President Obama's tenure, if the sequester operates smoothly.

In terms of people's livelihood, government spending cuts will, to some extent, have negative impacts on public service. The White House has said that the sequester will inevitably lay off a number of teachers, firefighters and airport staff, causing possible inconveniences such as more delayed flights.

From the point of view of economic growth, spending cuts mean a decrease in aggregate demand, affecting government spending-related projects such as defense and infrastructure programs.

According to the CBO estimates, an 85 billion-dollar spending cut is likely to lead to a loss of some 700,000 jobs, taking away 0.6 percentage point from the U.S. economic growth rate.

Editor: Sha Sha
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