2. Legislation Extending the Budget Control Act of 2011

The sequestration provisions related to discretionary spending from the Budget Control Act expired in fiscal year 2021, but multiple pieces of legislation extended sequestration for some non-exempt mandatory spending. Most recently, the Infrastructure Investment and Jobs Act allows the sequestration of certain mandatory spending through fiscal year 2031. Additionally, Medicare benefit payments are subject to sequestration of a maximum of 2 percent through fiscal year 2032 due to the enactment of the Consolidated Appropriations Act of 2023.

3. Statutory Pay-As-You-Go Act of 2010 (PAYGO)

Statutory PAYGO, which is separate from the PAYGO rule in the Senate and the CUTGO rule in the House, requires that any new legislation that increases mandatory spending or decreases revenues must be fully offset by other spending or revenue changes so it is deficit neutral. If either the 5- or 10-year average cost of new legislation is greater than zero when Congress adjourns, sequestration would be triggered. Because the PAYGO sequester is limited to mandatory spending programs, most programs are completely or partially exempt from such cuts; Medicare benefit payments, for example, are limited to a maximum 4 percent cut. PAYGO sequestration can also be nullified if Congress waives the rule or resets the PAYGO scorecards, which track the costs or savings of each legislation, to zero.

How Is Sequestration Carried Out?

The concept of sequestration was established in 1985 in the Balanced Budget and Emergency Deficit Control Act (BBEDCA), which outlines the general rules on sequestration enforcement procedures. If a sequestration is triggered, the President is required to issue a sequestration order that must follow the requirements set forth in the BBEDCA. The Office of Management and Budget (OMB) is then responsible for determining the sequester amount, which budget accounts will be subject to the sequestration order, and the uniform percentage by which non-exempt budgetary resources must be reduced to achieve the total necessary reduction. Not all government programs are impacted by a sequestration order. Some programs, mostly mandatory ones such as Social Security, Medicare, and Medicaid, are either completely or partially exempt from sequestration. Most discretionary programs are considered non-exempt and are, therefore, subject to sequestration.

Sequestration in the Past

Although the threat of sequestration has spurred legislative action in the past, only two instances exist where a sequestration has been implemented. A sequester was written in BBEDCA as a backstop in case lawmakers could not reach an agreement on how to meet the Maximum Deficit Amount for each fiscal year in the act, meaning across-the-board cuts to non-exempt budgetary resources would transpire if not met. That occurred in 1986 and the sequestration resulted in a $24.3 billion cut from budget authority. Subsequent legislation was written to adjust the parameters of sequestration and deficit targets, but some of the design elements of BBEDCA serve as the basis for current sequestration language.

The Budget Control Act (BCA) of 2011 implemented budget caps on discretionary spending over fiscal years 2012 to 2021 and formed the Joint Select Committee on Deficit Reduction, often referred to as the Super Committee, to produce legislation that reduced federal deficits by $1.5 trillion over that period. When the committee failed to produce such legislation, sequestration was triggered — automatically reducing spending for 2013 and lowering spending caps through 2021. A relatively small amount of mandatory spending was also subject to sequestration through 2021 (those provisions have subsequently been extended).