The second sequester has the potential to increase overall fiscal austerity this year. The exact magnitude of the additional spending cuts depends on the extent the Department of Defense (DoD) exceeds the BCA baseline. As a reminder, cutting budget authority does not necessarily translate into one-for-one spending cuts. At the very extreme, if the DoD has already used all $11bn of this additional budget authority, we will see an annualized hit of $19bn, or 0.1% of GDP. On the opposite end of the spectrum, if the Department of Defense did not use any of the extra $11bn, the second sequester would result in no additional austerity.
Putting an exact figure on the actual spending cuts resulting from the second sequester is very difficult. The Bipartisan Policy Center (BPC) finds that defense spending is currently running above its baseline pre-sequester budget cap. They estimate that the second sequester will result in additional austerity of $6bn in FY2013. On an annualized basis, that is a $10bn, or 0.06% of GDP, shock.
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