Sequestration for Dummies

Here's one attempt at explaining why sequestration will hurt more than you think it should. After all, shouldn't any government program be inefficient enough to absorb a 10% hit to help out with the deficeit and debt situation?

Let's say you make $120,000 a year. (A good income that is easily divisible by 12.) Before the beginning of the year, your employer tells you that you might have to take a 10% pay cut, but they aren't sure yet. So they're going to keep paying you the same as last year. Their plan is to let you know a few months into the year, maybe by the end of March. Then, after 3 months, they tell you they still aren't sure and will tell you in a couple more months, by the end of May. As Memorial Day nears, they finally figure out that YES … you do need to take that 10% pay cut, starting at the end of June. The problems facing you at this point are as follows:

1. They have already paid you half of your pay for the year, so they only owe you $60,000 more during the rest of the year.

2. Your mortgage payment is 44% of your income (a bit high, but not unheard of) and can't be changed. It is deducted directly from your paycheck, so you have to take the 10% pay cut (which works out to $12,000) from the other 56% of the remaining 50% of your income (which is $34K).

This means that your "10% pay cut" amounts to an effective 30+% cut in your remaining paychecks (since the $12K must come from the $34K that is eligible to be cut). OUCH.

Add to this the fact that the 10% must be cut from each of your spending accounts (insurance, food, transportation, entertainment, etc.). Some of these you may have agreements (contracts) with businesses for on an annual basis. Hmmm.

Multiply the amount by a million or so and shift the dates by 3 months to reflect the Federal Government's Fiscal Year (OCT - SEP) and … that the situation, in a nutshell, facing government departments.

DISCLAIMER:This is my personal website and blog. While I am currently an officer in the United States Army, any opinions posted here are my own and do not represent a position of the United States Government, the Department of Defense, or the U.S. Army.
scott [at] Nestler Analytics 2014