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Definition of Sequestration







What does the term "sequestration" mean? What is the definition of the term "sequestration"?

The word "sequestration" has a number of different meanings, but let's define the term as it applies to the world of politics.

You have likely heard the word "sequestration" mentioned when people have talked about the debt ceiling crisis or the "fiscal cliff".

Definition of Sequestration - Financial Dictionary - Politics - Illustration of Budget Cuts"Sequestration" is the implementation of automatic spending cuts if a certain target isn't met.

For instance, the Budget Control Act of 2011 called for "sequestration" if Congress wasn't able to come up with $1.2 trillion in spending cuts between 2013-2021. To calculate the amount of money that was to be cut, take $1.2 trillion and subtract from that the amount of money that Congress was able to cut from the budgets between 2013 and 2021. So, if Congress agreed on $600 billion in cuts, an additional $600 billion would be automatically cut from the budget via "sequestration".

These cuts would apply to mandatory and discretionary spending between 2013 and 2021, but certain programs such as Social Security, Medicaid and military employee pay would be exempt.

--

Let's take a look at a simple, fictional example to fully illustrate the idea of "sequestration".

A country has it written into their constitution that "sequestration" will be implemented if the country posts a deficit for three years in a row. The constitution calls for an automatic 5% in spending cuts if the nation isn't able to balance its books for three years in a row. These cuts apply to every single program, including government pension plans, defense spending and educational spending.

In the scenario above, we have a trigger (three straight years of deficit spending) and the resulting cuts (5% automatic spending cuts).

--

Nobody wants automatic spending cuts, as they are usually very disruptive to an economy.

The United States first introduced the concept of sequestration to their budget via the Gramm-Rudman-Hollings Deficit Reduction Act of 1985.


Davemanuel.com Articles That Mention Sequestration:

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