Week in Review, or Done Deal?
It was a tense week in Washington, with both Democrats and Republicans working together to inch the country closer to the fiscal cliff right until the last second. On Monday night, the Senate finally passed a bill reflecting a deal negotiated by Vice President Biden and Senator Minority Leader Mitch McConnell (R-KY) called The American Tax Payers Relief Act of 2012. The bill passed the Senate with a vote of 89-8 (with three Democratic Senators joining five Republicans in not voting for it). On New Year’s day, despite some initial grumblings that they would try to amend the bill, the House also passed the bill by a vote of 257-167 (with many Democrats and a minority of Republicans supporting it). The President is expected to sign the bill quickly, and hopefully fears of the U.S. “going off the cliff” will be quelled as markets open up today.
The final agreement would do a number of things, including raise tax rates for those individuals making more than $400,000 a year and families making more than $450,000 a year. It would also extend a number of tax provisions, including some of interest to higher education such as extension of the the business R&D tax credit and the above-the-line deduction for tuition. You can read the White House’s fact sheet on the final deal here. The independent Congressional Budget Office estimates that the bill would actually increase the federal deficit by almost $4 trillion, mostly because they compare it to current law which would have sent the country over the cliff with increased individual tax rates and spending cuts.
On the spending side, according to an analysis by the Non-Defense Discretionary Coalition, the agreement delays “sequestration” by 2 months, and actually reduces the amount of the automatic cuts by $24 billion, $12 billion of which comes from discretionary spending cuts (50% defense, 50% non-defense) and $12 billion from revenue. This is done, however, by reducing budget caps on FY 2013 and FY 2014 by $12 billion, so while the bill would reduce sequestration’s impact now, it would implement stricter spending limits in the future. That being said, limits on overall budget caps allow the President and Congress more leeway to prioritize certain programs (such as R&D funding), versus sequestration which would require cuts across all programs.
This two month delay on sequestration promises to coincide with the country effectively reaching the debt limit, which will surely add some drama to the negotiations. Also important to keep in mind is that if sequestration is ultimately implemented in two months time, that means there would be even less of FY 2013 in which to make the cuts, so the percentage of cuts (estimated now to be about 8-10% from current levels) could be even steeper. In summary, this bill has helped the country avert the fiscal cliff for now, but also kicked some outstanding deficit reduction issues down the road a few more months.
What’s on Deck
The upcoming year promises to be filled with even further discussions of comprehensive tax reform, entitlement reform, and getting federal spending under control, but hopefully the 113th Congress and White House will be able to continue with normal business all the while. After all, the 112th Congress has earned the distinction of least productive since 1947.
On the budget/appropriations front, we already know that the FY 2014 budget will be delayed from its normal timeline due to fiscal cliff negotiations. While the President normally delivers his budget to Congress in early February, it may take up to a month’s additional time to get it to Congress in 2013 (just in time to coincide with sequestration/debt limit negotiations!).
On the authorization front, we will be keeping an eye out for legislation coming out of the House Science, Space and Technology Committee, which promises to be legislatively active with its new Chair in place, Rep. Lamar Smith (R-TX). Legislation of note may include reauthorization of the America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science Act (COMPETES) Act, which authorizes funding for NSF, NIST, and the DOE Office of Science, and the NASA Authorization Act.
More to come in mid-January!