Clock on Sequester Runs Out
If you were watching the news at the end of last year, you probably heard the term “fiscal cliff” quite a bit. In a nutshell, there were two things scheduled to happen at the beginning of the year that would have caused the country to “go over the fiscal cliff.”
- The Bush Administration Tax Cuts would expire. This means that two separate laws that reduced the tax rate in the highest bracket to 35% (from 39.6%).
- Automatic cuts in government spending (known as “sequestration”) would become law if a congressional committee did not devise other ways to reduce the deficit by $1.5 trillion over the span of 10 years. This second automatic action was demanded according to the Budget Control Act of 2011.
The deadline Congress set for avoiding sequestration has passed. What will happen when the government goes over the “fiscal cliff”?
The fiscal cliff was averted when the Senate passed the American Taxpayer Relief Act of 2012 at the last minute (on January 1, 2013). It was considered a “compromise bill” that included new laws regarding taxes and other regulations. However, this action pushed the sequestration spending cuts back by two months to allow Congress time to keep devising ways to reduce the deficit. Those two months passed without a final solution.
This means that $85 million in automatic cuts will go into effect at the end of March per the original agreement.
The Conflict
The federal government makes money by collecting taxes from its citizens and from interest on loans made to other countries. In return, it spends money on services like the Post Office, national parks, disaster relief and the military. Both Democrats and Republicans agree that the government has been spending more money than it has collected in the past several years. What they can’t agree on is where to reduce the federal government’s spending and by how much such spending should be cut.
Scheduled Cuts
The cuts are divided between defense and domestic programs. Defense will see the biggest cuts, up to $42.7 billion. Other spending cuts will include the purchase of new weapons and operation expenses on military bases. Programs like Medicaid, Social Security, Temporary Assistance for Needy Families (TANF) and Supplemental Nutritional Assistance Program (SNAP) will not be affected. Yet other federal aid (such as Women, Infants and Children (WIC) and the Low Income Energy Assistance Program (LIHEAP) may be cut to reach a required $28.7 billion in domestic discretionary cuts.
President Obama’s administration recently announced that public tours of the White House have been canceled “until further notice.” According to an Obama administration official, Secret Service officers who are normally assigned to detail during the tours have been reassigned. These measures are just one example of ways that the deduction in federal spending is going to affect the operations of the government.
What’s Next?
In the next few weeks, President Obama will continue to meet with Congress to create an alternative to the sequestration. It has been reported that the president would like to replace the sequester with tax increases, including closing tax code loopholes. The Democrats would like to see a mix of tax increases and spending cuts, including a reduction in subsidies paid out to farmers. The Republicans would like to see the defense cuts replaced with cuts in the president’s national health care reform legislation–the Affordable Care Act, sometimes called “Obamacare.” The Republicans have also suggested a reduction in the money spent on the SNAP food stamp program.
President Obama is meeting with a hand-picked group of Republican senators nicknamed “the common-sense caucus” in the hopes of reaching a meaningful resolution. Spokesmen have said that they believe the president is committed to a compromise.