Government Releases Sequestration Exceptions…
EVG Research Team here. Earlier this year, politicians were threatening that March 1 would be a big doomsday event in the U.S. as the mandatory spending sequester kicks in.
Instead, Congress took the day off … and hardly anyone in leadership roles seem too worried about it.
Why the change of heart?
Well, it turns out there were plenty of “exemptions” in this bill. And you might be surprised who’s going to pay the most … and who won’t pay a dime.
But before we dig into all the sordid details, here’s a little (important) background information…
Today’s Sequester Is a Remnant of the “Fiscal Cliff”
In fact, it goes back farther than that.
Rewind your mind to August of 2011. The U.S. government had just maxed out their tax-funded credit card.
Everyone was desperate. Fingers pointed. Threats made.
When the dust settled, they presented Americans with a pseudo-solution called the “Budget Control Act.” Obama signed it into law on August 2, 2011.
It granted a large increase in the spending limit in exchange for future budget cuts.
Here’s what the Commander in Chief said about it at that time: “Is this the deal I would have preferred? No. But this compromise does make a serious down payment on the deficit reduction we need, and gives each party a strong incentive to get a balanced plan done before the end of the year.” -President Barack Obama
He was right: there was a huge incentive for both sides to get a better deal.
The law said that if the two parties couldn’t come up with a better solution, two things would happen:
1. The borrowing limit would automatically increase by another $1.2 trillion.
2. Automatic, across-the-board spending cuts called a “sequester” would kick in
Conservatives did not want to raise the debt ceiling any more, and liberals did not want social programs slashed, so it seemed like the strong-handed tactic might actually work.
But lawmakers failed to act in 2011 … and then waited until December of 2012 before they even started looking at a possible solution.
Economists sounded the first warning. They claimed that if the sequester, combined with the mandatory tax-hikes, actually took effect, it could cause irreparable harm to the already-fragile economy. They warned it might push the U.S. off the brink of recovery into a new recession.
That’s why many began calling it the “Fiscal Cliff.” And it turned into quite a circus.
Politicians pointed more fingers. News media fanned the flames. It was a frenzy.
The average citizen didn’t have a clue what the so-called “fiscal cliff” was all about, but at least he knew it was serious business… and that something had to be done soon. Or bad things would happen.
Here’s what did happen: in the wee hours of January 1, 2013 … Congress saved the day!
They passed a hefty tax increase for the wealthy, and allowed a significant tax increase to creep back into 86% of the American working public’s paychecks.
But that was only half of the “cliff” problem.
They simply kicked the other half (the sequester part) down the proverbial road. The automatic budget cuts were delayed until March 1.
Lawmakers claimed it would give both sides time to craft a “more equitable” plan rather than relying on sequestration.
That’s because most elected officials loathe a government spending sequester.
Why? Because it’s a brute-force budget-balancing tactic that hasn’t been used since 1987. Besides …
Sequestration Is a Silly Way to Do Business
Imagine you had a small business that employed 10 people. Two were brilliant workers who added tremendous value to your company and increased its profitability. Two of your employees were slackers who seriously underperformed in their duties. The rest were average workers.
Now let’s say the bad economy was affecting your business and forced you to make a 20% cut in your payroll. Which of these two scenarios would be smarter:
1. Fire the two underperforming employees, eliminating 20% of your workforce, or
2. Slash 20% of all 10 employees salary on an equal basis
A wise business owner would never pick #2 and punish his star employees in order to be “fair” to the slackers. That’s plain silly.
But that’s what a government sequester is all about: Every department pays equally. Across-the board cuts without taking into consideration the value of the program.
At least, that’s what we were led to believe.
And that’s why leaders on both sides of the political aisle where screaming and making threats about the dire effects of the sequester earlier this year.
Conservatives groused about how the sequester would harm our national security and gut our military.
Liberals whined that it would leave grandma out on the street without a blanket.
“Unfair” was the battle cry sounded on both sides. But neither side was right, because the reality is …
The Sequester Has Plenty of Loopholes
It turns out the “across the board cuts” politicians were threatening weren’t really across the board.
The Congressional Research Service released their official report last month called “Budget Sequestration and Selected Program Exemptions and Special Rules.”
The large document identifies certain programs that are 100% exempt from sequestration. These exceptions were squeezed into the the dark corners with fine print in the original “Budget Control Act” Obama signed into law back in August, 2011.
There are plenty of full exemptions from the sequester, including:
- Social Security and Medicaid benefits
- Refundable tax credits to individuals
- Food Stamps
- Children’s Health Insurance Program
- Supplemental Nutrition Assistance Program
- Temporary Assistance for Needy Families
- Supplemental Security Income
In other words, none of these political “hot-button” items will be affected at all. They’re exempt.
And, oh yea, all of the Congress’s special pension and insurance payments? Yup. Exempt. Go figure!
Another one of those exemptions is: “Compensation for the President” (Page 19)
The bill cited a constitutional provision which prevents the President’s salary from being reduced while he’s in office.
So Who WILL Pay for the $85 Billion in Cuts?
With so many exemptions, you may wonder who’s going to bear the brunt of the $85 billion in cuts that will kick in tonight at midnight.
The answer isn’t totally clear just yet, but one thing is clear: the military is on the hook for 50% of the sequester.
This hasn’t gotten a lot of press, because another one of the “exempt” items is military pay. In other words, the sequestration law does not permit anyone employed by the military to have their pay cut.
That’s why many analysts were predicting HUGE layoffs in the military, especially among its civilian workers.
We couldn’t find any good recent info on that, so your EVG research team made a few phone calls today. On the third try, we found someone willing to talk, on the condition of anonymity.
Creative Cuts in Military Pay
The nice lady, a civilian employed by the Army, said, “I can’t say if this is happening in all branches of the military, but here’s what’s happening here. They are giving us ‘forced furloughs’ amounting to two days off every two weeks, without pay.”
In other words, these support-level workers will take a 20% reduction in salary without having their pay rate reduced.
They won’t get to choose the 2 days of unpaid leave they are forced to take off, and they will not be able to file for unemployment benefits, because they are still employed.
Many are dismissing the sequester as “only” a 2% cut in the government’s budget.
But it appears it will be paid disproportionately by the little guys just trying to make ends meet. A 20% cut in pay for someone making $50,000 is significant for them!
Politicians may still work out a deal if the sequester causes a stink. We have a better plan…
How to Avoid Sequestration In Your Own Life
One thing is abundantly clear in all of this fiscal cliff and sequestration drama. Anyone who relies on the government for their livelihood had better keep watching their back.
Government programs, jobs and entitlements can come and go, and Congress can axe them at any time.
And don’t bet they’ll be acting in your best interest.
Instead, we at EVG promote a lifestyle that includes self-reliance, because the less you have to depend on government, the better your life will be.
We have 15 hand-picked strategies that help you build that self-reliant, abundant life.
We’d love to have you join us in our movement and take control of your own financial future.
Here’s a free presentation to get you started:
Your Partner In Prosperity,
The EVG Research Team