• Myths and Facts About Sequestration

    by  • March 14, 2013 • The Economy • 0 Comments

    By now, you probably have a good idea as to what is sequestration. There are however several common myths about the sequester. Here they are:

    1. Sequestration is a one-time budget cut.

    Myth. “Sequestration” is actually series of automatic, across-the-board spending cuts to federal government agencies that are scheduled to take place in fiscal years 2013 through 2021.

    2. Sequestration will affect Social Security, Medicare and Medicaid Payments

    Myth. Social Security, Medicaid, and Medicare benefits are exempt from sequestration. Although cuts to Medicare provider payments are on the table, they can’t exceed 2% of current payments.

     3. Sequester will cut growth and lead to job losses

    Fact. The cuts, totaling $1.2 trillion, will be split evenly between defense and domestic discretionary spending. The cuts are effective March 1. (The cuts were originally scheduled to take effect January 1 but were postponed to March 1 as part of the last-minute fiscal cliff deal reached on New Year’s Day.

    4. Sequester will not affect defense spending

    Myth. The automatic cuts are effective March 1, 2013. From 2013 through 2021, sequestration is scheduled to cut $1.2 trillion from government agencies, split evenly between defense and domestic programs. More than $500 billion is scheduled to be cut from the Defense Department and other national security agencies. The remaining cuts will affect a variety of domestic programs, including education, public safety, energy, national parks, food inspections, housing aid, transportation, and law enforcement.

    5. The sequester will result in a government shut-down.

    Myth. You may have heard a great deal about what’s going to happen as a result of the sequester, and much of it has likely been alarming. It’s important to understand, though, that the government will not be shutting down. In fact, while it’s hard to know exactly how things will play out as the cuts are implemented, most individuals are probably not going to notice a significant, immediate effect. Federal agencies will notify employees of possible furloughs, and the Defense Department will do the same with civilian employees, but those furloughs likely won’t take effect for at least a month. In addition to potential layoffs and furloughs, individual agencies will begin announcing and implementing other cost-saving measures.

    6. Despite the sequester, the government will run out of money.

    Fact. This one is unfortunately true. Federal funding for the current fiscal year expires on March 27, 2013. Unless Congress authorizes additional funding, a partial government shutdown would result. In addition, a few months later, expect another debt ceiling debate. The federal government reached its $16.394 trillion debt ceiling limit at the end of 2012. Congress subsequently suspended the debt ceiling limit until May 19, 2013, and although the U.S. Treasury has some ability to continue operations beyond that date, at some point the debt ceiling debate will need to be addressed. Thus, it’s conceivable that any short-term agreement on sequestration would include provisions that address these deadlines as well.

    Whether Congress addresses some or all of these issues over the coming weeks or months is anyone’s guess. So stay tuned.

    About

    Tim Mobley is a Louisiana licensed professional who has over twenty years of experience serving the community. He is passionate about working with clients and his goal is to educate and inform them so they feel confident in the decisions that will shape their future. Whether you are concerned about getting out of debt, outliving your retirement, paying too much tax on Social Security benefits, or keeping your money safe in a changing global economy, Tim is a trusted source. His business and personal focus is to coordinate your investment objectives from a tax planning perspective.

    http://www.barongroup.net

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