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Sequestration never really worked, though, and it was repealed in 1990 and replaced by a new budget deal.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 dust heap of history as an enforcement mechanism. It would go into effect automatically if no deal was reached. More HERE!