Taxpayer's Tab: Changes Coming to Sequestration?

Vol. 4 Issue 42, December 6, 2013

Changes Coming to Sequestration?

In the wake of the government shutdown in October, Congress created a conference committee whose task is to put together a budget agreement for the rest of the Fiscal Year. Earlier in the year the House and Senate separately passed contrasting budget plans. As detailed in the October 24th edition of The Taxpayer's Tab, the Republican-controlled House proposed to begin the process of reforming America's entitlement programs and boost defense spending, whereas the Democrat-controlled Senate's budget would raise taxes to help pay for more domestic spending. Few details have been released as to the progress of the committee headed by Congressman Paul Ryan (R-WI) and Senator Patty Murray (D-WA); however, both parties have voiced their willingness to replace or cancel the automatic across-the-board cuts, known as sequestration.

The sequester cuts, enacted in the Budget Control Act in 2011, automatically kicked in early this year after a specially-appointed joint committee failed to agree on a deficit reduction plan. The sequester sets caps that are automatically enforced if spending exceeds the limits. As a result, most departments and agencies saw cuts in their individual budgetary accounts. Some programs, like Social Security, Medicaid, and veteran's benefits, were exempted from sequestration. Throughout the early months of the year, warnings and claims of impending disaster that would result from these cuts filled the airwaves and newspapers. Congress did pass a few laws excluding additional exclusions, but after the predicted doomsday scenarios did not play out, and other issues came to the fore, the effort to repeal the Fiscal Year 2013 sequester waned.

Now, legislators are considering whether to replace or eliminate the next round of sequestration that will go into effect in January. In general, Democrats seek to continue cuts made to national defense while increasing outlays for social and entitlement programs, funded by new taxes and fees, while Republicans want national defense programs to be exempted from the automatic reductions, offset by additional cuts in domestic programs and also the implementation of reforms of entitlement programs facing trillions of dollars in long-term unfunded liability costs.

The FY 2014 sequester is estimated to cut $109 billion from the budget, however, the savings would actually be spread out over the next several years rather than occurring all at once.

Six bills introduced in Congress would entirely repeal sequestration for FY 2014, which could increase spending by up to $26.4 billion annually. However, three of those bills call for other budgetary changes, such as tax hikes, additional spending increases to domestic or defense activities, and adjustments to current budget caps. All of these bills were introduced in the first-half of the year and no other bills as comprehensive have been sponsored.

As legislators and taxpayers consider the implications of the budget conference committee’s recommendations, or lack thereof, attention is due to the fact that the sequester is the first sustained, meaningful cut in federal spending in a long while. The last time spending fell in consecutive years was in the early 1950s. By repealing these cuts, lawmakers would signify their dislike of relatively modest restraints. If the conference committee recommends replacing the cuts, they should do so with specific, targeted cuts elsewhere in the $3.5 trillion budget and resist the temptation to employ budgetary tricks and gimmicks.

Most Expensive Bill of the Week

The Bill: H.R. 3546/S. 1747, the Emergency Unemployment Compensation Extension Act of 2013

Annualized Cost: $12.8 billion per year ($25.7 billion over five years)

Unemployment Compensation is a joint state and federal welfare program available to certain eligible workers who have lost their jobs and are seeking employment. Initially, benefits are available to individuals for up to 26 weeks. In response to the financial slowdown that began in 2008, President George W. Bush signed into law the Emergency Unemployment Compensation (EUC08) program, a federal initiative that extended eligibility for unemployment benefits by an additional 47 weeks. Benefits are offered through a tier-based system in which maximum benefit levels are dependent on the unemployment rate in a given applicant's state.

Although the program was designed to offer temporary relief, it has been amended and extended 11 times since its passage, most recently in 2012 as part of the American Taxpayer Relief Act. That extension is set to expire at the end of the 2013 calendar year.

Congressman Sander Levin (D-MI) and Senator Jack Reed (D-RI) introduced the Emergency Unemployment Compensation Extension Act of 2013 to extend the EUC08 program for another year (until the end of 2014). Rep. Levin's office cited a weak economic recovery as the primary justification for the bill: "[S]ix years after the Great Recession began, our economy is still 1.5 million jobs shy of reaching pre-recession levels." The bill's sponsors also said that over 1.3 million Americans would lose benefits without an extension.

From FY 2008 and 2013, the federal government spent over $594 billion for unemployment compensation, including $310 billion for regular unemployment benefits and $226 billion for emergency benefits. The Congressional Budget Office (CBO) projected that the Act would increase federal outlays by $25.7 billion over the next two years if the legislation is enacted.

To learn more or discuss this bill visit


Least Expensive Bill of the Week

The Bill: H.R. 3486/S. 1702, the Transportation Empowerment Act

Annualized Savings: $17.8 billion ($71.3 billion over three years)

In 1956, Congress established the United States Highway Trust Fund in order to finance construction of the Interstate Highway System. The Fund is comprised of three accounts and is funded by the federal gas excise tax. That rate currently stands at 18.4 cents per gallon, a level set in 1993 during President Clinton's administration. The federal government uses gas tax revenues (as well as funds collected from excise taxes on trucks, tires, and specially designated vehicles) to repair and build roads, bridges and other surface transportation infrastructure.

Like many other federal programs, the Highway Trust Fund has repeatedly experienced funding shortfalls in recent years requiring Congress to draw tens of billions of dollars from general tax revenue to fund projects. Critics contend that this is because the excise tax has not been adjusted for so long. Other factors include rising construction costs, the widespread use of more fuel efficient cars, and, certainly, Congress' inability to adjust its spending habits to meet the existing supply of dedicated revenue.

Congress has enacted a series of transfers and reauthorizations to cover the shortfalls and extend the program. The most recent legislation, the Moving Ahead for Progress in the 21st Century (MAP-21) Act, will expire after 2014. At that point, CBO estimates that the Trust Fund will not have the resources available to meet its obligations -- unless Congress raises the gas tax by about ten cents per gallon. Just this week, Congressman Earl Blumenauer (D-OR) proposed to nearly double the tax, raising it to 33.3 cents by 2015.

As an alternative solution to the funding problem, Congressman Tom Graves (R-GA) and Senator Mike Lee (R-UT) introduced the Transportation Empowerment Act, which would transfer authority over surface transportation infrastructure projects to the states over a period of five years. Starting in FY 2015, the proposal would gradually reduce both federal spending on highway programs and the federal gas tax to 3.7 cents per gallon.

Senator Lee said that "all states and localities should finally have the flexibility to develop the kind of transportation system they want, for less money, without politicians and special interests from other parts of the country telling them how, when, what, and where they should build."

NTUF determined that the Transportation Empowerment Act would reduce federal spending, relative to current levels authorized in the MAP-21 Act, by $71.3 billion between FY 2015 and 2018.

To learn more or discuss this bill visit


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Photo Credit: Washington Post


The Wildcard

The Bill: H.R. 3588, the Community Fire Safety Act of 2013

Annualized Cost: "No Cost" -- Regulatory

Bloomberg News reports that the city of Philadelphia, PA has nearly $238,000 worth of fire hydrants ready to be installed in the coming year. However, due to drinking water regulations being proposed by the Environmental Protection Agency (EPA), those hydrants may never be put to use.

The EPA issued a regulation in 2011 that would lower the maximum amount of metal allowed in plumbing devices that are in contact with water supplies. Under those rules, fire hydrants would not be exempt, even though critics of the regulations claim that the lead used in hydrant fittings poses little or no risk to the public. Fire hydrant manufacturers apparently did not receive notice that they would have to conform to the rules until October of this year.

In response, Congressman Bill Johnson (R-OH) introduced H.R. 3588, the Community Fire Safety Act of 2013. The bill would exempt fire hydrants from the lead restrictions that go into effect in early 2014. Rep. Johnson's office said that the bill "recognizes that hydrants are not intended to be a major source of drinking water and addresses this public safety risk by ensuring that legal hydrants will be readily available for installation and replacement."

Given the regulatory nature of the proposal, NTUF does not expect the bill to have any significant effect on federal outlays.

To learn more or discuss this bill visit

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About NTUF

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