What Happened Last Time We Had a Budget Sequester?

Despite what Bob Woodward says, Obama didn't invent the sequester.

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Think the sequestration is a new idea? Think again. There's nothing new under the sun, and that includes universally hated automatic spending cuts.

Back in 1985, when the budget deficit was a quaint $220 billion, Congress decided the only way to ensure Republicans and Democrats address the deficit was mandatory across-the-board spending cuts. So they passed the Gramm-Rudman-Hollings Balanced Budget Act, which did just that, as U.S. News explained at the time:

"Under the law, enacted in the final days of the 1985 session, Congress and the President must agree on a budget that meets annual deficit-reduction targets, or spending will be cut automatically under a complex system called "sequestration." Sound familiar?

Then, as now, the cuts were evenly divided among defense and nondefense programs. Then, as now, onlookers warned the cuts would leave food and drugs uninspected, airport runways unwatched, and soldiers unequipped.

[READ: 10 Industries That Will Be Hurt Most by the Sequester]

"All of us, and that includes the President and his advisers, will have to give a little if we are to avoid the wreckage," said Pete Domenici, the Senate's budget chairman at the time, sounding very much like current House Speaker John Boehner.

So what happened? It didn't work. The Supreme Court declared the automatic cuts unconstitutional, and when a revised version of the bill passed in 1987, Congress mostly evaded the cuts, and the deficit continued to grow. Congress scrapped the plan altogether in the Budget Enforcement Act of 1990, which included more carefully chosen spending cuts.

This time around the deficit is larger, the faces different, but little else has changed. If history is any guide, the budget Rapture isn't upon us, and the sequester isn't written in stone.

This article originally appeared in the Jan. 27, 1986 issue of U.S. News & World Report.

The Curtain Rises on Gramm-Rudman; Budget Law Takes First Bite

By Jeffery L. Sheler with Andy Plattner, Kenneth T. Walsh and Melissa Healy and Robert J. Morse of the Economic Unit

The costs of balancing the federal budget began hitting home for millions of Americans in mid-January as the nation caught a startling first glimpse of life under the Gramm-Rudman Act.

Just days before Congress reassembled for what promised to be a chaotic election-year session, the government unveiled details of nearly $12 billion in automatic spending cuts — the first under the new deficit-reduction law — that will slash hundreds of federal programs, from farm aid to defense, on March 1.

Even before the cuts were announced, lawmakers were peppered with complaints from constituents.A broad cross section of senators and House members, interviewed at home between sessions, reported growing concern and anger over reductions in cost-of-living allowances and other benefits and services. "People are seeing the direct effect of Gramm-Rudman on their pocket-books," explained Representative Peter Visclosky (D-Ind.).

The first visitation of automatic spending cuts raised the specter of even greater chaos in October when a budget ax five times as large will fall unless Congress and the President agree on a budget that reduces red ink by nearly $60 billion. Already, pressure is mounting on Capitol Hill to raise taxes and cut defense spending — moves that President Reagan opposes. "All of us, and that includes the President and his advisers, will have to give a little if we are to avoid the wreckage in October," says Senate Budget Committee Chairman Pete Domenici (R-N.M.).

Despite signs of nervousness — and a court test that threatens to strip the law of its enforcement feature — lawmakers and the White House were braced for a trial run under the landmark budget law designed to wipe out deficits by 1991.

Under the law, enacted in the final days of the 1985 session, Congress and the President must agree on a budget that meets annual deficit-reduction targets, or spending will be cut automatically under a complex system called "sequestration." Social Security benefits, interest payments on the national debt and some "safety net" programs for the poor would be exempted from cuts, and certain health-care expenditures would be partially shielded.

The first automatic cuts, for the fiscal year that began October 1, were outlined on January 15 in a joint report by the Office of Management and Budget and the Congressional Budget Office. Based on a "snapshot" of the economy on January 10, the two agencies predicted that, without the automatic cuts, this year's deficit would top a record $220 billion — some $42 billion more than the OMB predicted in August for this year and nearly $49 billion above this year's Gramm-Rudman target.

Lawmakers agreed to limit the first-year automatic cuts to $11.7 billion, evenly divided between defense and nondefense items, and to grant the President some leeway in distributing defense reductions.

The administration planned to use that flexibility to spare Reagan's Strategic Defense Initiative from cuts, to protect purchases of certain Navy aircraft and other weapons on long-term contract and avoid reductions in manpower. Instead, Pentagon cuts will focus on such things as purchases of M1 tanks for the Army, F-15 and F-16 fighter jets for the Air Force and slowing production of Navy cruisers and of MX missiles. Hardest hit will be the Pentagon's operations-and-maintenance account that keeps airplanes flying, ships steaming and spare parts in plentiful supply. Almost half the $5.9 billion total in defense reductions will be chopped from that account.

Meanwhile, millions of Americans will be affected by across-the-board cuts of 4.3 percent in nondefense programs ranging from agriculture and education to law enforcement.

Already canceled is a 3.1 percent cost-of-living pension adjustment due in January for 2 million federal civilian and 1.5 million military retirees. Cuts at the Department of Agriculture will reduce funding for loan guarantees and direct loans to farmers. Public elementary and secondary schools will get less federal help, and fewer guaranteed loans will be available for college students.

Despite OMB Director James Miller's prediction that the cuts would cause "a minimum of disruption" in federal offices, several agencies — including the Food and Drug Administration and the Labor Department — were weighing layoffs and other cuts in staff expenses.

The automatic cuts also will mean less spending this year on highways, housing, mass transit — in all, hundreds of programs. Even expenditures to operate the White House, Congress and the Supreme Court face cutbacks.

Beyond the projected savings, details of the first-round spending cuts gave Congress and the President a graphic and foreboding preview of what will occur in October if they fail to negotiate a budget agreement for 1987.

"We know that if we fail to act the hammer in October will be five times this first experience," says Domenici, who predicts it would take a sequestration of nearly $60 billion and across-the-board cuts of nearly 25 percent below current levels to reach next fall's $144 billion deficit target.

Cuts of that magnitude, say budget experts, would wreak havoc on government programs. That assessment is borne out in an analysis by the Economic Unit of U.S. News & World Report and interviews with budget officials in key federal agencies. Among the potential 1987 disruptions:

♦ The defense budget, instead of getting the $20 billion increase Reagan wants, would be slashed by nearly $30 billion to a total of $237.4 billion — the first actual decline in military spending since 1973. That, say military experts, would force reductions in manpower, a scaling down of purchases of ammunition and spare parts and abandonment of some major weapons programs. If that occurs, predicts Defense Secretary Caspar Weinberger, "it will become damaging to the point of real danger."

♦ A projected cut of nearly $80 million at the Food and Drug Administration would force deep reductions in personnel, according to an FDA spokesman, resulting in "fewer inspections in the field, which raises the risk of bad products getting onto the market." It would also take FDA researchers longer to review drugs and devices before granting approvals.

♦ The Federal Aviation Administration, which already is weighing cuts in technical and maintenance personnel as a result of the March 1 order, would face even deeper reductions that, some officials warn, could jeopardize air safety. Says Senator Alan Cranston (D-Calif.): "There would be cuts in air controllers and air-safety inspectors at a time when it is clear that it isn't safe to be flying."

One escape from the budget squeeze could come next summer in a federal court challenge of the Gramm-Rudman Act. Under expedited procedures, the Supreme Court is expected to rule by July 4 on a suit filed by a group of House members who contend that the law's provision for automatic cuts violates the Constitution by yielding congressional control of the government's purse strings to unelected bureaucrats.

So far, there are no signs of consensus on just how to avert a budget stalemate next fall — or even if that is possible. "I hope I'm wrong, but from here I don't see how we'll avoid it," says Willis Gradison (R-Ohio), a member of the House budget panel.

The first major test of wills comes on February 3 when the President sends Congress his budget for the year beginning next October. That budget, according to senior White House aides, will call for a 3 percent real boost for defense, deep cuts in domestic spending, including the elimination of about 20 programs, and no tax increase. Already, key lawmakers — Democrats and Republicans — predict the President's plan will be rejected. Not even Reagan's closest allies expect his defense-spending plans to survive long in Congress.

Still, the White House was determined to lobby hard to keep lawmakers from dismissing Reagan's budget, starting with his state-of-the-union message on January 28. Repeating a tactic he used to quell a Republican revolt on tax reform in December, Reagan planned a trip to Capitol Hill on January 31 to rally GOP support for his budget blueprint.

But many lawmakers are convinced that it will take more than spending cuts alone to slash the deficit. Some experts estimate a tax hike of $15 billion to $20 billion will be needed if automatic cuts are to be avoided next fall. But few expect a serious move on taxes unless Reagan takes the lead. Although White House officials say Reagan is as determined as ever to veto any tax bill that crosses his desk, some budget strategists predict he will change course as a last resort to stave off sequestration that would cut deeply into his defense budget.

Hopeful of avoiding a last-minute crisis, some lawmakers are calling for a "budget summit" involving the President and congressional leaders early in the year to work toward a "grand compromise" that includes taxes as well as cuts in spending on defense and domestic programs. "Let's get up to Camp David with the President, put everything on the table and not leave until we have an agreement," says James Jones (D-Okla.), former chairman of the House Budget Committee.

While that idea is gaining support, not everyone is convinced that it will provide the desired breakthrough. Predicts Representative Leon Panetta (D-Calif.): "With all of the political games being played in an election year, it's going to take us right to the wall before anything meaningful happens."

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