The Sequester, Explained 1MAR13 & Debt versus Deficit: What’s the Difference?

MOTHER JONES does a great job of explaining the sequester in this piece. Before going there, because there is so much confusion over the federal debt and federal deficit (they are not the same thing) take a look at these (if you are interested). This from the Treasury Dept 

What is the difference between the public debt and the deficit?

The deficit is the difference between the money Government takes in, called receipts, and what the Government spends, called outlays, each year. Receipts include the money the Government takes in from income, excise and social insurance taxes as well as fees and other income. Outlays include all Federal spending including social security and Medicare benefits along with all other spending ranging from medical research to interest payments on the debt. When there is a deficit, Treasury must borrow the money needed for the government to pay its bills.

We borrow the money by selling Treasury securities like T-bills, notes, Treasury Inflation-Protected securities and savings bonds to the public. Additionally, the Government Trust Funds are required by law to invest accumulated surpluses in Treasury securities. The Treasury securities issued to the public and to the Government Trust Funds (intragovernmental holdings) then become part of the total debt.

One way to think about the debt is as accumulated deficits. For information concerning the deficit, visit the Financial Management Service website to view the Monthly Treasury Statement of Receipts and Outlays of the United States Government. You can read more on this topic in the Federal Borrowing and Debt chapter of the Analytical Perspectives volume of the most recent budget. http://www.treasurydirect.gov/news/pressroom/pressroom_bpd08052004.htm  On the federal debt, from the GAO Government Accountability Office

How large is the federal debt?    View details 

Total federal debt—also known as gross debt—is the amount of the federal government's outstanding debt issued by the Treasury and other federal government agencies. Totaling about $14.8 trillion at the end of fiscal year Any yearly accounting period, regardless of its relationship to a calendar year. The fiscal year for the federal government begins on October 1 of each year and ends on September 30 of the following year; it is named by the calendar year in which it ends. Prior to fiscal year 1977, the federal government began its fiscal year on July 1 and ended it on June 30.2011, gross debt consists of two components: (1)debt held by the publicFederal debt held by all investors outside of the federal government, including individuals, corporations, state or local governments, the Federal Reserve and foreign governments. and (2) debt held by government accountsFederal debt owed to government accounts, primarily to federal trust funds such as Social Security and Medicare. The cumulative surpluses, including interest earnings, of these trust funds and other government accounts have been invested in Treasury securities, almost always nonmarketable. Whenever a government account needs to spend more than it takes in from the public, the Treasury must provide cash to redeem debt held by the government account. Consequently, this reflects a future burden on the economy.

 (also known as intragovernmental debt holdings), such as the Social Security and Medicare trust funds. More at http://www.gao.gov/special.pubs/longterm/debt/debtbasics.html And then there is this from the GAO 

Quick Links:

Federal Debt and the Fiscal Outlook
GAO's federal simulations show that absent policy changes, the federal government faces a rapid and unsustainable growth in debt. Simulations of the state and local government sector show that not only the federal government faces fiscal challenges that will have a profound effect on government over the coming decades. ENTERING 2013 Perspectives on Fiscal and Performance Challenges Facing Government GAO-13-388CG, Feb 12, 2013 http://www.gao.gov/search?q=federal+deficit&facets=a%3A1%3A%7Bs%3A10%3A%22topic_term%22%3Bs%3A19%3A%22Budget+and+Spending%22%3B%7D&search_type=Solr

Pete Souza/White house

Today is Sequestration Day! To celebrate, all of your most burning sequestration questions are answered right here. Enjoy.

Where did the whole idea of sequestration originate? It goes back to 1985. The tax cuts of Ronald's Reagan early years, combined with his aggressive defense buildup, produced a growing budget deficit that eventually prompted passage of the Gramm-Rudman-Hollings Act.GRH set out a series of ambitious deficit reduction targets, and to put teeth into them it specified that if the targets weren't met, money would automatically be "sequestered," or held back, by the Treasury Department from the agencies to which it was originally appropriated. The act was declared unconstitutional in 1986, and a new version was passed in 1987.

Sequestration never really worked, though, and it was repealed in 1990 and replaced by a new budget deal. After that, it disappeared down the Washington, DC, memory hole for the next 20 years.

What about the 2013 version? Where did that come from? In the summer of 2011, Republicans decided to hold the country hostage, insisting that they'd refuse to raise the debt ceiling unless President Obama agreed to substantial deficit reduction. After months of negotiations over a "grand bargain" finally broke down in July, Republicans proposed a plan that would (a) make some cuts immediately and (b) create a bipartisan committee to propose further cuts down the road. But they wanted some kind of automatic trigger in case the committee couldn't agree on those further cuts, so the White House hauled out sequestration from the dustbin of history as an enforcement mechanism. It would go into effect automatically if no deal was reached.

In the end, no immediate cuts were made, but a "supercommittee" was set up to propose $1.5 trillion in deficit reduction later in the year. To make sure everyone was motivated to make a deal, the sequester was designed to be brutal: a set of immediate, across-the-board cuts to both defense spending and domestic spending, starting on January 1, 2013. The idea was that everyone would hate this so much they'd be sure to agree on a substitute.

Needless to say, no such agreement was reached. So now we're stuck with the automatic sequestration cuts.

How big is the sequester? You'd think this would be an easy question to answer. In fact, it's surprisingly complicated! Are you ready?

The basic amount of the sequester is $1.2 trillion in deficit reduction over 10 years. But when you reduce spending, you also reduce interest on the national debt. This means that we only need $984 billion in actual program cuts. And since it's for 10 years, naturally that means we divide by nine to get annual spending cuts of $109 billion. For FY2013, this comes to $12 billion per month, because there are only nine months from January (when the sequester begins) through the end of the fiscal year in September.

But wait! The fiscal cliff deal in January delayed the sequester until March 1, so it also lopped off two months of cuts. This means that the total amount of spending cuts for this year clocks in at $85 billion.

So what gets cut? The sequester is split evenly between defense spending and domestic spending. The domestic half has two parts: Medicare and everything else. For Medicare, the sequester specifies a flat 2 percent cut in reimbursements. Doctors will continue to bill at their usual rate, but they'll only receive 98 cents on the dollar. According to the Congressional Budget Office, here's how the whole thing nets out (see Table 1-2):

• Defense: $42.7 billion
• Medicare: $9.9 billion
• Other domestic: $32.7 billion

Aside from Medicare, how are the other cuts divvied up? The sequester legislation requires the cuts to come evenly from every budget account. This means everything (with a few exceptions) gets cut the same amount. This is an especially stupid way to cut spending, since everyone agrees that some programs are more important than others, but that's the way it is. If you really want to torture yourself, you can read this Office of Management and Budget report, which contains 224 pages listing the sequester amounts from every single agency in the United States government. It's followed by another 158 mind-numbing pages of agency accounts that are exempt from the sequester.

But as stupid as this is, don't get too excited about it. It's only for FY2013, which lasts seven more months. After that, although the total amount stays in place ($109 billion, split evenly between defense and domestic spending), congressional appropriations committees have much more flexibility about how to juggle the cuts.

Aren't we still in a recession? What are these cuts going to do to the economy?Technically, we're no longer in a recession, but there's no question the economy remains weak. A big bunch of dumb spending cuts is about the last thing we need.

That said, the actual impact of the cuts is hazy. Among private forecasting firms,Macroeconomic Advisers figures the sequester will cut GDP by 0.7 percentage points, while IHS Global Insight puts it at 0.3 percent. Back before the sequester was delayed, CBO estimated 0.8 percentage points. Given a consensus growth forecast of about 2 percent for this year, this is a fairly substantial headwind. In terms of jobs, it will probably increase the unemployment rate by about half a percentage point. This is why Fed chairman Ben Bernanke basically told Congress on Tuesday that they were nuts to let the sequester proceed.

That's all sort of bloodless. How about some horror stories? You know, three-hour waits at airports because of TSA cutbacks, food poisoning epidemics thanks to USDA cutbacks, that sort of thing? The White House has been making a lot of hay over its 50-state breakdown of cutbacks. California, for example, will lose 1,200 teachers, 8,200 Head Start slots, 49,000 HIV tests, $5 million in meals for seniors, etc. You can see the forecasts for your state here. Aside from that, Wonkblog seems to be the go-to site for alarmist coverage of the sequester. Brad Plumer has the impact on R&D spending here. In an interview with Ezra Klein, former NIH director Elias Zerhouni says it will be a "disaster for research." Suzy Khimm interviews a former Homeland Security official here who says smuggling will increase. And MoJo's own Zaineb Mohammed lists six ways the sequester will hurt the environment here,including higher risk of damage from wildfires.

That's terrible! Does anyone have a plan to avoid the sequester? Sure. Sort of. President Obama has proposed a substitute that includes about $1.1 trillion in spending cuts and $700 billion in new revenue. It was dead on arrival because Republicans are flatly unwilling to consider any plan that includes higher taxes. Back in December, Republicans in the House passed a bill that would have kept all the domestic cuts and replaced the defense cuts with yet more domestic cuts, mostly to anti-poverty programs. It was DOA too, for obvious reasons. House and Senate Democrats have plans as well.

But the truth is that there's probably no deal to be made. Republicans won't accept tax hikes, Democrats won't accept any bill that's exclusively spending cuts, and neither party is willing to just kill the sequester outright, which is the most sensible option. For now, all that's really happening is that both sides are barnstorming the country blaming the other guys. Obama seems to be winning that battle at the moment.

Political Blogger

Kevin Drum is a political blogger for Mother Jones. For more of his stories, click here. RSS |TWITTER

• 6 Ways the Sequester Will Mess Up the Environment

  National parks, food inspection, and clean-energy development are just a few of the programs that will take a major hit.

• 12 Ways the Sequester Will Screw the Poor

  The impending across-the-board spending cuts will slash all kinds of programs for low-income people.

• A "Sequester" Is Not the Same Thing as a "Substitute for the Sequester"

• The Best Plan for the Sequester: Just Kill It

  http://www.motherjones.com/kevin-drum/2013/03/the-sequester-explained

U.S. trucking funds reach Taliban, military-led investigation concludes 24JUL11

This is what we are fighting for??? Sacrificing American blood for??? Wasting hundreds of millions of taxpayer dollars for??? This is another example of the corruption of the Afghan nation that demands we end this war and get out of Afghanistan now! From the Washington Post....

By Karen DeYoung

A year-long military-led investigation has concluded that U.S. taxpayer money has been indirectly funneled to the Taliban under a $2.16 billion transportation contract that the United States has funded in part to promote Afghan businesses.
The unreleased investigation provides seemingly definitive evidence that corruption puts U.S. transportation money into enemy hands, a finding consistent with previous inquiries carried out by Congress, other federal agencies and the military. Yet U.S. and Afghan efforts to address the problem have been slow and ineffective, and all eight of the trucking firms involved in the work remain on U.S. payroll. In March, the Pentagon extended the contract for six months.
According to a summary of the investigation results, compiled in May and reviewed by The Washington Post, the military found “documented, credible evidence . . . of involvement in a criminal enterprise or support for the enemy” by four of the eight prime contractors. Investigators also cited cases of profiteering, money laundering and kickbacks to Afghan power brokers, government officials and police officers. Six of the companies were found to have been associated with “fraudulent paperwork and behavior.”
“This goes beyond our comprehension,” said Rep. John F. Tierney (D-Mass.), who last summer was chairman of a House oversight subcommittee that charged that the military was, in effect, supporting a vast protection racket that paid insurgents and corrupt middlemen to ensure safe passage of the truck convoys that move U.S. military supplies across Afghanistan.
The military summary included several case studies in which money was traced from the U.S. Treasury through a labyrinth of subcontractors and power brokers. In one, investigators followed a $7.4 million payment to one of the eight companies, which in turn paid a subcontractor, who hired other subcontractors to supply trucks.
The trucking subcontractors then made deposits into an Afghan National Police commander’s account, already swollen with payments from other subcontractors, in exchange for guarantees of safe passage for the convoys. Intelligence officials traced $3.3 million, withdrawn in 27 transactions from the commander’s account, that was transferred to insurgents in the form of weapons, explosives and cash.
A senior U.S. defense official said that a radically revised transport system, replacing the Host Nation Trucking contract when it expires in September, will be announced in a few weeks. Based on the findings of the investigation, the new contract will expand the number of companies from eight to at least 30 and change the security system for the truck convoys. It will require detailed information on all subcontractors and supervision by military units in the field rather than headquarters-based contracting officers.
In the meantime, interim steps have been taken to improve oversight and accountability within the murky web of companies and individuals involved in the shipment of more than 70 percent of all U.S. military food, fuel, weapons and construction material within Afghanistan, said the official, who was authorized to discuss the issue only on the condition of anonymity.
“It’s still ugly,” the official said. “But it’s getting better.”

Problems with local vendors
Unlike in Iraq, where the U.S. military favored using American contractors who made millions providing security, reconstruction and training, local hires have performed the bulk of those tasks in Afghanistan. During the first quarter of this fiscal year, the U.S. military’s Central Command reported that 53 percent of more than 87,000 contract personnel it employed in Afghanistan were locals.
The U.S. Agency for International Development and the State Department together signed nearly 1,000 contracts with non-U.S. vendors in Afghanistan last year.
The employment, under a government-wide policy called Afghan First, is an integral part of the Obama administration’s counterinsurgency strategy and calls for promoting Afghan capabilities, businesses and infrastructure.
The extensive military use of contractors for tasks such as transport, security and construction is also designed to free U.S. troops for warfighting and, in most cases, is deemed far less expensive than using American resources.
But “awards to local vendors in Afghanistan pose particular challenges,” according to a General Accountability Office report issued last month, because of the large size of the U.S. effort, the great distances that must be traveled on often-dangerous roads and “the potential for fraud, corruption, or the siphoning of funds to organizations hostile to U.S. forces.”
The GAO report concluded that the number of contracts was so huge that it was impossible to vet them all, and it recommended assessing only the most risky. The U.S. Army Corps of Engineers and the State Department, the GAO said, have no vetting system in Afghanistan, and the Defense Department’s practice is to vet contractors only after contracts have been issued.
The GAO noted that one Defense Department vetting system averages 15 vendors per week and would take until March 2012 to vet the 1,042 Afghan vendors awarded new military contracts in fiscal 2010. The estimate did not include a backlog of contracts from previous years or any contract valued at less than $100,000.
Weak contractor oversight
Massive amounts of food, fuel and warfighting material are needed to support U.S. troops in Afghanistan; their number has more than tripled to about 100,000 since President Obama took office. Most supplies are brought by ship to neighboring Pakistan and transported by truck to central military depots in Afghanistan.
From there, the goods are trucked to hundreds of military installations across the country, usually along desolate stretches of road controlled by or vulnerable to attack from warlord militias and Taliban insurgents. Moving the supplies requires 3,000 to 4,000 trucks per week.
Six of the eight companies chosen as prime contractors under the Host Nation Trucking contract are owned by Afghans or are joint Afghan-international ventures. Two are considered U.S.-owned, including the Washington-based Sandi Group and NCL Holdings, whose founder and president, Hamed Wardak, is the son of Afghanistan’s defense minister. The new investigation, conducted by a military-led task force that included officials from the FBI, Treasury and U.S. intelligence, did not identify which of the companies are implicated in payments to insurgents, nor does it quantify how much money has been misspent or transferred to insurgents.
Wardak, in an interview last year, denied that his company was involved in any kickbacks or indirect payments to insurgents. The Sandi Group did not respond to requests last week for comment.
For the life of the contract — one year, with options for a second year and the recently exercised six-month extension — each company was guaranteed a minimum of $250,000 and a maximum of $360 million. U.S. expenditure was capped at $2.16 billion, although less than $600 million had been paid out through March.
Prime contractors were responsible for furnishing up to 600 trucks and protecting them. But five of the eight prime contractors had no trucks of their own, two had fewer than 200, and all hired subcontractors to provide security, according to the investigation. From the start, the companies have served largely as brokers atop scores of subcontractors.
As early as the summer of 2009, amid frequent reports that subcontractors and middlemen were paying contract money to warlords and the Taliban to guarantee safe passage for the convoys, U.S. Army investigators prepared a briefing for senior commanders that bore the blunt title “Host Nation Trucking Payments to Insurgents.” Investigators estimated that the going rate for protection was $1,500 to $2,500 per truck, paid by contractors and their subs to private Afghan security companies allied with warlords or insurgents — or, in some cases, directly to militias or Taliban commanders.
The military maintained that federal contracting rules did not require, and by some interpretations prohibited, a close look below the level of prime contractors. Investigating the relationships behind the kickbacks and protection rackets would have been expensive, time-consuming and difficult. Many military officials in charge of overseeing the contracts were reluctant to disturb the status quo, believing it was far more important that food, fuel and bullets for U.S. forces were delivered intact and on time.
“These people should be fired and sent home,” the senior defense official said of the military overseers. “The attitude is crazy — it’s okay to pay the enemy because then we have better snacks” if the convoys travel unimpeded. “I think everybody gets that now.”

Concern in Washington
In the fall of 2009, problems with the trucking contract were discussed during a closed-door review by the administration of its war strategy. That December, Secretary of State Hillary Rodham Clinton and then-Defense Secretary Robert M. Gates voiced public concern that the United States was funding the very people it was fighting against in Afghanistan.
Since then, Afghan and U.S. officials have made changes on the margins as they tried to unravel the complicated web of actors and track the money. In Afghanistan, President Hamid Karzai pledged to disband all private security contractors and form a new government security force to guard supply convoys, but implementation has been slow.
In Washington, impatient lawmakers began their own investigations. In early 2010, Tierney charged the military with foot-dragging in its response to the subcommittee’s request for “all documents related to HNT security.” In May, after the military refused to turn over the 2009 briefing prepared by Army investigators, Tierney wrote a letter of complaint to Gates.
The document was supplied in June, along with a redacted copy, in which most or all of every page was blacked out, that the Defense Department deemed suitable for public disclosure. A department lawyer wrote Tierney to warn of “serious consequences” for what were still “open criminal investigations” and “for our relationship with the government and people of Afghanistan” if the unredacted document was publicly revealed.
Last summer, after the release of the House subcommittee report, the then-U.S. commander in Afghanistan, Gen. David H. Petraeus, appointed task forces to investigate contracting and corruption, including Task Force 2010, which carried out the investigation of the trucking contract. In September, he released new guidelines making commanders accountable for monitoring contracts within their areas of responsibility.
The next month, a separate Senate Armed Services Committee investigation into contracting confirmed the House report, concluding that the military had only minimal knowledge of — and exercised virtually no control over — the thousands of Afghans contracted to guard its installations and supply convoys.
Both reports identified the security wing of the Watan group, a business conglomerate run by relatives of Karzai, as involved in bribing officials for control over convoy routes and making payments to Taliban commanders. In the most substantive action by the military, Watan was barred in December from receiving new U.S. contracts. But it has contested the action in court, denying the allegations, and has been allowed to continue its security work so the company could “fully exercise due process,” the senior defense official said.
The House and Senate have adopted measures this year, attached to fiscal 2012 defense spending legislation, giving military commanders additional powers to investigate and cancel contracts in which insurgent ties have been found.
Tierney, now the top minority member of the national security subcommittee of the House Committee on Oversight and Government Reform, voiced sharp criticism of the length of time it took the military-led task force to reach the same conclusions that lawmakers made public a year ago.
“I would hate like hell to think my kid was over there” and the Taliban was “coming after them with something bought with our taxpayers’ money,” Tierney said.