The Budget Control Act of 2011: Budgetary
Effects of Proposals to Replace the FY2013
Sequester
Mindy R. Levit
Analyst in Public Finance
August 24, 2012
Congressional Research Service
7-5700
www.crs.gov
R42675
CRS Report for Congress
Pr
epared for Members and Committees of Congress

---

The Budget Control Act of 2011: Budgetary Effects of Proposals to Replace the Sequester

Summary
The Budget Control Act of 2011 (BCA; P.L. 112-25) provided for an increase in the statutory
limit on the public debt in conjunction with a variety of measures to reduce the budget deficit.
Included in these measures was the creation of a Joint Select Committee on Deficit Reduction,
which was tasked to develop and submit a plan to Congress containing deficit reduction to total at
least $1.2 trillion over the FY2012-FY2021 period. However, because the committee did not
report out recommendations, the BCA’s automatic spending reduction process was triggered. This
process, set to begin on January 2, 2013, would reduce federal outlays over the next decade
unless legislation is enacted to prevent it.
Both President Obama and some Members of Congress have offered proposals for repealing or
modifying the automatic spending reductions. The President’s FY2013 Budget Proposal
eliminates the automatic spending reductions for all nine years and replaces them with alternative
measures to reduce the deficit. The House FY2013 Budget Resolution (H.Con.Res. 112),
accompanying budget reconciliation procedures, and the resulting Sequester Replacement
Reconciliation Act (H.R. 5652), and the Van Hollen Amendment to H.R. 5652 propose
eliminating different elements of the automatic spending reductions in FY2013 only and
replacing them with alternative measures to reduce the deficit.
In his FY2013 budget, President Obama proposes replacing the BCA automatic cuts with
prescribed spending cuts and tax increases. The largest of these proposals include allowing the
2001/2003/2010 tax cuts for singles making over $200,000 and households making over
$250,000 to expire; savings generated from changes to Medicare, Medicaid, agriculture, and other
mandatory programs; and placing caps on spending on Overseas Contingency Operations (OCO).
Together, these deficit reduction proposals total $2,221 billion above the level otherwise achieved
by the BCA’s automatic spending reduction process between FY2013 and FY2022.
The Sequester Replacement Reconciliation Act of 2012 (H.R. 5652), agreed to by the House on
May 10, 2012, would cancel the sequester of approximately $98 billion in discretionary defense,
discretionary non-defense, and mandatory defense FY2013 funding scheduled to take place on
January 2, 2013; would lower the current FY2013 cap on discretionary budget authority set by the
BCA of $1,047 billion to $1,028 billion; and would cut other mandatory non-defense programs. If
enacted, this measure would reduce the deficit by $262 billion over the FY2012 to FY2022 period
above the level otherwise achieved by the BCA’s FY2013 automatic spending reductions.
Representative Chris Van Hollen offered a substitute amendment to H.R. 5652. His proposal
would replace the entire FY2013 sequester with a series of revenue increases and spending
reductions. If enacted, this measure would reduce the deficit by $30 billion over the FY2012 to
FY2022 period above the level otherwise achieved by the BCA’s FY2013 automatic spending
reductions. This measure was not made in order by the House Rules Committee.
In addition to the measures proposed above to replace the BCA’s automatic spending cuts,
President Obama signed into law the Sequestration Transparency Act of 2012 (H.R. 5872) on
August 7, 2012. This legislation requires OMB, in consultation with the House and Senate
Appropriations Committees, to submit a detailed report within 30 days of enactment containing
information on how the BCA’s FY2013 automatic spending reductions will affect each non-
exempt program, project, and activity.
Congressional Research Service

---

The Budget Control Act of 2011: Budgetary Effects of Proposals to Replace the Sequester


Contents
Changes in Federal Spending Assuming that the BCA’s Automatic Spending Reductions
are Implemented ........................................................................................................................... 1
Proposals to Replace the FY2013 Sequester ................................................................................... 5
President Obama’s Proposal ...................................................................................................... 5
Sequester Replacement Reconciliation Act (H.R. 5652)........................................................... 5
Van Hollen Amendment to H.R. 5652....................................................................................... 6
Other Alternatives...................................................................................................................... 6
Legislation Requiring Disclosure of Sequester Impact ................................................................... 7

Tables
Table 1. Deficit Reduction Under the BCA and Alternatives to Replace the FY2013
Sequester....................................................................................................................................... 3

Contacts
Author Contact Information............................................................................................................. 8

Congressional Research Service

---

The Budget Control Act of 2011: Budgetary Effects of Proposals to Replace the Sequester

he Budget Control Act of 2011 (BCA; P.L. 112-25), signed into law by President Barack
Obama on August 2, 2011, provided for an increase in the statutory limit on the public
T debt in conjunction with a variety of measures to reduce the budget deficit.1 These
measures included the creation of a Joint Select Committee on Deficit Reduction, which was
tasked to develop and submit a plan to Congress containing deficit reduction to total at least $1.2
trillion over the FY2012-FY2021 period. However, because the committee did not report out
recommendations and therefore no deficit reduction plan became law by January 15, 2012, the
BCA’s automatic spending reduction process was triggered. This automatic spending reduction
process, set to begin on January 2, 2013, would reduce federal outlays over the next decade
unless legislation is enacted to prevent it.
The BCA specified a reduction of $1.2 trillion in cuts to budgetary resources over a nine-year
period, with $216 billion (or 18%) of the total reduction to be achieved via savings on debt
service costs. This amount was stipulated in the BCA itself.2 The remaining $984 billion is to be
divided equally across each of the nine years, resulting in annual cuts of approximately $109
billion. Approximately $55 billion of these annual reductions will affect defense spending and
$55 billion will affect non-defense spending.
Some in Congress have objected to the mechanism by which spending would be cut in these years
and have proposed alternatives to these reductions. However, in order to modify the deficit
reduction process contained in the BCA, Congress and the President would have to enact
legislation to cancel or replace the automatic reductions.
This report provides information on the levels of deficit reduction if the BCA’s automatic cuts are
implemented as under current law and contrasts that with the alternative proposals offered by
some Members of Congress and President Obama. This report also discusses specific
determinations made by the Office of Management and Budget regarding the exempt/non-exempt
status of certain programs, as well as a discussion of information to be disclosed regarding the
FY2013 BCA sequester impact.
Changes in Federal Spending Assuming that the
BCA’s Automatic Spending Reductions are
Implemented
On January 2, 2013, a set of “across-the-board” reductions in non-exempt programs are set to
take effect via a sequestration process. These cuts will affect the remainder of FY2013 and will
occur unless Congress and the President act to cancel the cuts. Between FY2014 and FY2021, the

1 For more information on the Budget Control Act of 2011, see CRS Report R41965, The Budget Control Act of 2011,
by Bill Heniff Jr., Elizabeth Rybicki, and Shannon M. Mahan. For more information on the budgetary effects of the
BCA, see CRS Report R42506, The Budget Control Act of 2011: The Effects on Spending and the Budget Deficit When
the Automatic Spending Cuts Are Implemented, by Mindy R. Levit and Marc Labonte.
2 The actual amount of debt service savings will depend on future interest rates and the timing of the deficit reduction.
As described in CBO’s analysis of the net budgetary savings resulting from an automatic $1.2 trillion reduction in the
event a Joint Committee bill is not enacted, debt service savings amount to 16% of the total between FY2013 and
FY2021. See Congressional Budget Office, Estimated Impact of Automatic Budget Enforcement Procedures Specified
in the Budget Control Act, September 12, 2011.
Congressional Research Service
1

---

The Budget Control Act of 2011: Budgetary Effects of Proposals to Replace the Sequester

dollar amount of the cuts will remain the same, though the cuts will be implemented in a different
way. In those years, the reductions to mandatory spending will be implemented via a
sequestration process, while the reductions to discretionary spending will be made via a lowering
of the discretionary spending caps, effectively leaving it up to Congress to decide, via the
appropriations process, how the cuts would be implemented under the new, lowered caps.
Because Congress retains control over how the discretionary spending cuts in later years
(FY2014-FY2021) will be implemented, they can choose to target specific programs, rather than
have the more non-discriminatory cuts made via the sequester.
Table 1, below, shows how the deficit reductions will be distributed across discretionary and
mandatory spending categories. The amount of deficit reduction shown in Table 1 differs from
the amount of the reduction in budgetary resources because the deficit is measured as the
difference between outlays and revenue. There is a lag in the time a cut to budgetary resources
would result in a reduction in outlays.3 Due to the provisions of the BCA, no changes are made to
revenue in the automatic process under that law; however, some proposals to replace the
automatic cuts recommend raising revenues to achieve the desired deficit reduction.


3 For example, the FY2013 sequester would cut budgetary resources by roughly $109 billion, $55 billion on defense
discretionary, $43 billion on non-defense discretionary, and $12 billion on non-defense mandatory. (Cuts to defense
mandatory spending total less than $500 million over the FY2013-FY2021 period because the vast majority of defense
spending is discretionary.) The corresponding effects on FY2013 outlays is estimated at $32 billion on discretionary
defense, $24 billion on discretionary non-defense, and $10 billion on mandatory non-defense. The effect of the
remainder of the FY2013 reductions occur in later years. Congressional Budget Office, The Budget and Economic
Outlook: Fiscal Years 2012 to 2022, Box 1-2 and Table A-2.
Congressional Research Service
2

---

The Budget Control Act of 2011: Budgetary Effects of Proposals to Replace the Sequester

Table 1. Deficit Reduction Under the BCA and Alternatives to Replace the FY2013 Sequester
(in billions of dollars of outlays; positive/negative numbers indicate an increase/decrease in spending or revenues)
FY2012-

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2022
BCA Automatic Spending Reductions









Discretionary
n/a -$56 -$79 -$87 -$89 -$90 -$90 -$89 -$88 -$87 n/a -$755
Mandatory
n/a -$10 -$14 -$14 -$15 -$15 -$16 -$16 -$17 -$17 n/a -$134
Revenue
n/a $0 $0 $0 $0 $0 $0 $0 $0 $0 n/a $0
Total Deficit Reduction
n/a
-$66
-$93
-$101
-$104
-$106
-$106
-$105
-$105
-$105
n/a
-$890
President’s FY2013 Budget









Discretionarya
$0 $13 $4 -$7 -$28
-$102
-$105
-$107
-$110
-$116
-$119
-$677
Mandatory
$11 $2 -$17 -$42 -$50 -$59 -$63 -$66 -$74 -$88 -$140 -$586
Revenue
* $103 $84 $168 $225 $197 $204 $208 $231 $239 $254 $1,913
Increase in Deficit Due
$0 $71 $96 $105 $109 $109 $109 $109 $109 $109 $38 $966
to Eliminating BCA
Automatic Spending
Reductions
Total Deficit Increase
$11 -$17 -$1 -$112 -$194 -$249 -$263 -$272 -$306 -$334 -$475 -$2,212
(+) or Reduction (-)
Sequester Replacement Reconciliation Act (H.R. 5652)b





Discretionary
$0 -$11 -$5 -$2 -$1 -* $0 $0 $0 $0 $0 -$19
Mandatory
-$2 -$16 -$18 -$24 -$24 -$21 -$21 -$22 -$22 -$23 -$29 -$222
Revenue
-* $2 $4 $6 $9 $12 $12 $12 $12 $12 $12 $94
Increase in Deficit Due
$36 $21 $12 $2 $1 $0 $0 $0 $0 $0 $72
to Eliminating BCA
Automatic Spending
Reductions
Total Deficit
-$2 $7 -$5 -$19 -$32 -$33 -$33 -$34 -$34 -$35 -$41 -$262
Reductionc
CRS-3

---

The Budget Control Act of 2011: Budgetary Effects of Proposals to Replace the Sequester

FY2012-

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2022
Van Hollen Amendment to H.R. 5652c





Discretionary
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Mandatory
$0 $0 -$5 -$2 -$2 -$3 -$3 -$3 -$3 -$3 -$3 -$27
Revenue
$1 $9 -$3 $8 $8 $9 $10 $10 $11 $11 $11 $85
Increase in Deficit Due
$0 $46 $21 $12 $2 $1 $0 $0 $0 $0 $0 $82
to Eliminating BCA
Automatic Spending
Reductions
Total Deficit Increase
-$1 $37 $19 $2 -$8 -$11 -$13 -$13 -$13 -$13 -$14 -$30
(+) or Reduction (-)
Source: CBO, The Budget and Economic Outlook: Fiscal Years 2012 to 2022, Table A-2; Office of Management and Budget, Budget for FY2013, Summary Tables, Table S-2;
CBO, Sequester Replacement Reconciliation Act (cost estimate), Table 2; CBO, Letter to the Honorable Chris Van Hollen Regarding a Proposed Amendment to the Sequester
Replacement Reconciliation Act of 2012, Table 2.
Notes: The President’s proposal eliminates the BCA automatic spending reductions in al years (FY2013-FY2021). The Sequester Replacement Reconciliation Act and the
Van Hollen Amendment eliminate the BCA automatic reductions in FY2013 only. For each proposal, the deficit reduction that replaces the BCA automatic spending
reductions are achieved over the FY2012-FY2022 period. Totals may not sum due to rounding. Changes in spending and revenue listed above do not include debt service
savings. n/a indicates “Not Applicable.” * indicates $500 million or less.
a. Contains less than $28 billion in mandatory savings related to program integrity initiatives that could not be separated out from other discretionary savings.
b. Assuming July 1, 2012, enactment.
c. Includes discretionary spending reductions as a result of lowered FY2013 discretionary cap level from current BCA FY2013 cap levels. Amount of deficit reduction
attributed to the caps change is illustrated in the discretionary category. This amount could change based on future appropriations actions for FY2013.

CRS-4

---

The Budget Control Act of 2011: Budgetary Effects of Proposals to Replace the Sequester

Proposals to Replace the FY2013 Sequester
Some Members of Congress have offered proposals for repealing or modifying the automatic
spending reductions before they go into effect. In some instances, the proposals replace the entire
process through FY2021, and in other instances, they only replace the process in FY2013. The
President’s FY2013 budget proposal eliminates the automatic spending reductions for all nine
years and replaces them with alternative measures to reduce the deficit. The Sequester
Replacement Reconciliation Act (H.R. 5652) and the Van Hollen Amendment to H.R. 5652
propose eliminating different elements of the automatic spending reductions in FY2013 only and
replacing them with alternative measures to reduce the deficit. These measures and their resulting
levels of deficit reductions are shown in Table 1.
Other alternatives have been proposed, but in order to facilitate comparisons between the
different proposals, only those with CBO or OMB scores are included in Table 1. For a brief
discussion of additional proposals that have yet to be scored, see the section below titled “Other
Alternatives.”
President Obama’s Proposal
In his FY2013 budget, President Obama proposes replacing the BCA automatic cuts with
prescribed spending cuts and tax increases. The largest of these proposals include allowing the
2001/2003/2010 tax cuts for single filers making over $200,000 and married joint filers making
over $250,000 to expire; savings generated from changes to Medicare, Medicaid, agriculture, and
other mandatory programs; and placing caps on spending for Overseas Contingency Operations
(OCO). Together, these deficit reduction proposals total $2,221 billion (see Table 1) above the
level otherwise achieved by the BCA’s automatic spending reduction process between FY2013
and FY2022.4
Sequester Replacement Reconciliation Act (H.R. 5652)
The House-passed FY2013 budget resolution proposes to replace the Budget Control Act’s
automatic cuts with spending cuts to be achieved elsewhere. Pursuant to instructions included in
the FY2013 budget resolution, the Sequester Replacement Reconciliation Act of 2012 (H.R.
5652), as considered by the House, proposes to replace portions of the FY2013 sequestration with
spending cuts achieved elsewhere while leaving the FY2014 to FY2021 automatic cuts in place.
The legislation would cancel the sequester of approximately $98 billion in discretionary defense,
discretionary non-defense, and mandatory defense FY2013 funding scheduled to take place on
January 2, 2013. The sequestration of FY2013 non-defense mandatory funding of approximately
$12 billion would remain in place. In exchange for eliminating the majority of the FY2013
automatic spending reductions, H.R. 5652 would lower the current FY2013 cap on discretionary
budget authority set by the BCA of $1,047 billion to $1,028 billion and would cut other

4 The deficit reduction proposed in the President’s budget to replace the automatic spending reduction process total
$3,187 billion. However, the budget also proposes to cancel $996 billion in automatic cuts. Therefore, the cumulative
effect of these reductions is $2,221 billion. CRS calculations based on Office of Management and Budget, Budget for
Fiscal Year 2013, Summary Tables, Table S-2.
Congressional Research Service
5

---

The Budget Control Act of 2011: Budgetary Effects of Proposals to Replace the Sequester

mandatory non-defense programs. The change to mandatory programs include alterations of the
SNAP benefits and eligibility criteria, modifications to certain housing and financial authorities,
alterations to the provisions related to health insurance exchanges established by the Affordable
Care Act, adjustments to the required retirement contribution rates paid by federal employees and
Members of Congress, and changes to Medicaid and CHIP.
If enacted, this measure is projected to reduce the deficit by an estimated $262 billion over the
FY2012 to FY2022 period (see Table 1) above the level otherwise achieved by the BCA’s
FY2013 automatic spending reductions.5 The deficit in FY2013 itself would be higher as a result
of H.R. 5652 than it otherwise would have been had the BCA’s automatic spending reductions
remained in place. This measure was agreed to by the House on May 10, 2012, by a vote of 218-
199.
Van Hollen Amendment to H.R. 5652
Representative Chris Van Hollen proposed a substitute amendment to H.R. 5652. His proposal
would have replaced the entire FY2013 sequester with a series of revenue increases and spending
reductions. Changes in spending would have been achieved mainly by ending the direct payment
program for agricultural producers. Among the revenue measures contained in this amendment
were a new minimum tax for taxpayers with adjusted gross income of greater than $1 million,
increased retirement contributions paid by Members of Congress, and limits on certain tax
deductions used by oil and gas companies.
If enacted, this measure would have projected to reduce the deficit by $30 billion over the
FY2012 to FY2022 period (see Table 1) above the level otherwise achieved by the BCA’s
FY2013 automatic spending reductions.6 The deficit in FY2013 through FY2015 would be higher
as a result of this amendment than it otherwise would have been had the BCA’s automatic
spending reductions remained in place. This measure was not made in order by the House Rules
Committee, and therefore was not offered.
Other Alternatives
In addition to the proposals discussed above, other legislation has been introduced but has not
been issued a public cost estimate by CBO. Chairman of the House Armed Services Committee
Representative Buck McKeon introduced the Down Payment to Protect National Security Act of
2011 (H.R. 3662) on December 14, 2011. The bill replaces the entire FY2013 sequester with
limits on the number of new federal employees who can be hired to replace employees who leave
federal service. Senator Jon Kyl introduced a similar measure in the Senate, titled Down Payment
to Protect National Security Act of 2012 (S. 2065), on February 2, 2012. In addition to the
provisions contained in H.R. 3662, it also contains a provision that extends the federal employee
pay freeze through June 2014. No action has been taken on either of these measures.

5 Congressional Budget Office, Cost Estimate for Sequester Replacement Reconciliation Act, Table 2.
6 Congressional Budget Office, Letter to the Honorable Chris Van Hollen Regarding a Proposed Amendment to the
Sequester Replacement Reconciliation Act of 2012, Table 2.
Congressional Research Service
6

---

The Budget Control Act of 2011: Budgetary Effects of Proposals to Replace the Sequester

Legislation Requiring Disclosure of Sequester
Impact
In addition to the measures proposed above to replace the BCA’s automatic spending cuts, on
August 7, 2012, President Obama signed into law the Sequestration Transparency Act of 2012
(H.R. 5872). The act requires the President, with the assistance of OMB and federal agencies, in
consultation with the House and Senate Appropriations Committees, to submit a “detailed” report
within 30 days of enactment containing the uniform percentage reduction and dollar amount
reductions for each account, and each program, project, and activity within those accounts,
required under the sequestration scheduled to occur on January 2, 2013. The report also is
required to include a list identifying all exempt discretionary and mandatory spending accounts.
The BCA requires OMB to submit a report containing information regarding the calculations and
reductions required under the automatic process, including the FY2013 sequestration, on January
2, 2013, and with the President’s budget submission each year thereafter. No other reporting
requirements are included in the BCA itself.
However, OMB has issued responses to questions raised by Members of Congress regarding
certain sequestration implementation issues. In a May 25, 2012, letter to House Budget
Committee Chairman Paul Ryan, OMB’s Acting Director Jeffrey Zients wrote that the
Administration had determined, reiterating from an earlier letter, all programs administered by
VA, including Veterans’ Medical Care, were exempt from sequestration.7 In a June 15, 2012,
letter to House Committee Chairman Howard P. “Buck” McKeon, Ileana Ros-Lehtinen, and Mike
Rogers, Mr. Zients wrote that the Administration has “identified no statutory basis for generally
exempting OCO funds from sequestration.”8 Finally, on July 31, 2012, Zients sent a letter to
Speaker Boehner notifying him of President Obama’s intent to exempt military personnel
accounts from the FY2013 sequestration.9


7 The letter does not address whether administrative expenses for the VA programs would be exempt from
sequestration. Letter from Jeffrey Zients, Acting Director of the Office of Management and Budget, to The Honorable
Paul Ryan, Chairman of the House Committee on the Budget, May 25, 2012, http://www.whitehouse.gov/sites/default/
files/omb/legislative/letters/response-letter-to-chairan-ryan-05232012.pdf.
8 Letter from Jeffrey Zients, Acting Director of the Office of Management and Budget, to The Honorable Howard P.
“Buck” McKeon, Chairman of the House Committee on Armed Services, The Honorable Ileana Ros-Lehtinen,
Chairwoman of the House Committee on Foreign Affairs, and The Honorable Mike Rogers, Chairman of the House
Permanent Select Committee on Intelligence, June 15, 2012, http://www.whitehouse.gov/sites/default/files/omb/
legislative/letters/response-letter-to-chairman-mckeon-ros-lehtinen-rogers-06152012.pdf.
9 Letter from Jeffrey Zients, Acting Director of the Office of Management and Budget, to The Honorable John A.
Boehner, Speaker of the House of Representatives, July 31, 2012, http://www.whitehouse.gov/sites/default/files/omb/
legislative/letters/military-personnel-letter-boehner.pdf.
Congressional Research Service
7

---

The Budget Control Act of 2011: Budgetary Effects of Proposals to Replace the Sequester

Author Contact Information

Mindy R. Levit

Analyst in Public Finance
mlevit@crs.loc.gov, 7-7792

Congressional Research Service
8

---