Fiscal Cliff Part Deux: Federal Workers Beware

fiscal cliff sequestration

Now that the politicians have reached a deal on the fiscal cliff, we should all be jumping for joy right? Unfortunately, the answer is a big fat yes and no.

For the millions of us in the private sector, yes, reaching a deal means there is some sort of certainty going forward and the damage to our wallets is only a sliver of what it could have been.

On the other hand, there is a new crisis looming that is just two months away; SEQUESTRATION!

Sequestration, refers to another part of the fiscal cliff (unlike the tax related portions, the revenue side of the equation, that were averted with the most recent deal between Congress and the White House) that tackles the spending side of the equation.

Sequestration mandates that if Congress and the President do not come to an agreement before a certain time (originally January 2, 2013, but with the most recent deal there is a 2 month extension) that spending for both defense and non-defense related expenses would be “sequestered” and the rate of growth would be significantly curtailed.

The spending reduction elements of the fiscal cliff are primarily contained within the Budget Control Act of 2011, which directed that both defense and non-defense discretionary spending be reduced by “sequestration” if Congress was unable to agree on other spending cuts of similar size. Congress was unable to reach agreement and therefore the sequestrations are expected to take effect on January 2, 2013 if Congress and President Obama do not agree to a budget deficit reduction plan. The scope of the law excludes major mandatory programs such as Social Security and Medicare.

For a more in-depth explanation read this Wiki.

In essence, sequestration was implemented to provide all parties the proverbial stick required to come to a compromise. The “stick” being a cut in spending that was both mandatory and so severe, that would affect so many people, that they would be forced to take action and become responsible.

While the most recent deal helped avert significant tax increases on nearly every American, the deal did not tackle the spending cuts.  Instead, the parties gave themselves 2 more months to tackle this issue by passing a temporary extension.

While there are many fundamental problems with not addressing this issue yet, the most poignant one is that nearly 800,000 Federal employees, and hundreds of thousands of civilian defense and government contractor employees may be facing a furlough (lay-off) in just 2 months time.

The move essentially bought federal workers a two-month delay from massive cuts — totaling $110 billion each year over the next decade — that would force agencies to cut 8% to 10% from their budgets. Several departments, including Defense, NASA and Agriculture, had started to tell employees to get ready for furloughs.

The Department of Defense had been preparing to give notice to its entire civilian workforce.

On Wednesday, the Pentagon said it had put on hold plans to notify up to 800,000 workers that they may be furloughed.

For further information read this CNN story.

While we will continue to follow this next big budget controversy, we want to hear from you.  Are you a government employee, or a employed by a government contractor? What have you heard about the future of your job and how are you planning to deal with it? Leave your story below.


About Anthony Candella

Anthony is the founder and Directing Attorney of and has been helping consumers just like you understand and improve your credit and financial situation since 2003.