Definition of 'Sequestration'
A term adopted by Congress to describe a fiscal policy process that automatically reduces the federal budget across most departments and agencies. Sequestration, or "the sequester," is a procedure by which across-the-board spending cuts go into effect if Congress fails to agree on a deficit-reducing budget before a specified date.
Investopedia explains 'Sequestration'
Most recently, the threat of sequestration was included in the Budget Control Act of 2011, with mandatory budget cuts scheduled to go into effect on Jan. 2, 2013. The budget cuts were deferred until March 1, 2013 as part of the American Taxpayer Relief Act (ATRA), signed into law on Jan. 2, 2013, by President Obama.
The Budget Control Act of 2011 (BCA) increased the United States’ debt ceiling and established a 12 member committee (the Joint Select Committee on Deficit Reduction, or the “super committee”) to reduce the deficit by an additional $1.2 trillion to $1.5 trillion over the next decade. Part of the BCA, also known as the debt ceiling compromise, called for sequestration if the super committee failed to reach an agreement, generating automatic spending cuts for each of nine years (fiscal years 2013-2021), including over $85 billion in cuts for fiscal year 2013. Congress was unable to reach an agreement, and the American Taxpayer Relief Act pushed the budget cuts back until March 1, 2013. With Congress still unable to reach an agreement, sequestration was approved and went into effect on March 4, 2013.
The cuts are split between domestic and defense programs; for 2013, the sequester encompasses budget cuts totaling $85.4 billion, including:
For more information related to Sequestration, check out Fiscal Cliff and Boehner Bill.