Fiscal Cliff Notes

Aging in America: A Capital View

Those who pay some attention to national news and politics have heard such terms as “fiscal cliff,” “discretionary spending,” and “sequester” or “sequestration.”  They also likely know there was a flurry of activity in Congress and at the White House this past December to avoid having the nation fall off the so-called “fiscal cliff.” They may also know that with a collective sigh of relief we stopped right at the cliff’s edge. The fiscal cliff was averted. Or was it?

Major decisions were in fact made as part of this budget agreement as 2012 ended, including increasing the debt ceiling, extending tax breaks that were expiring and not renewing others like the so-called Social Security payroll “tax holiday” – thus returning the payroll tax rate to prior levels.  One major result was averting the automatic cuts in discretionary spending for both defense and non-defense programs (like meals on wheels) that were to take effect at the beginning of 2013.

But the threat of falling off the fiscal cliff didn’t stop there; it was merely delayed until a later date, a date not much further off.

Before the ink dried on the late December “Avoid the Fiscal Cliff” agreement, three dates in early 2013 were getting special attention: March 1, March 27 and an uncertain date this summer.

March 1: Sequester

March 1 was the date that the dreaded “sequester” was to kick in if Congress and the White House did not reach agreement on how to reduce the deficit another $1.2 trillion over the next ten years.  They didn’t reach agreement and the sequester began March 1, as the price for their failure. Between March 1 and September 30, 2013 (which marks the end of Fiscal Year 2013) government must cut $85 billion. Those cuts are just beginning to take effect and will pick up steam in coming weeks and months. Among some of the most immediate effects are cuts to schools on military bases for the children of service men and women and to schools on Indian reservations.

March 27: CR Expires

The second date is March 27. The federal government budgets on a “fiscal year” that begins October 1 of a year and ends on September 30 of the following year. If a budget for a particular fiscal year is not agreed to, then in effect the federal government shuts down until an agreement is reached. That has happened in the past. It’s messy and ugly and people are harmed by it. It is a lousy way to run our government. Because of that, Congress and the White House try to reach some agreement to keep the doors of government (and the many programs and services it operates) open. In recent years they’ve done that through short-term agreements that are good for only a portion of the fiscal year. They do this by passing “Continuing Resolutions” or “CRs” which are often called “stop-gap” measures. When a CR’s period (often six months) ends there needs to be a new agreement or the government shuts down. This too is messy. But it is pretty much what we’ve had a steady diet of in recent years

This year is no exception. Last fall Congress passed and the President signed a CR good through March 27, 2013. It held spending at the previous (2012) year’s amounts -- meaning no increases for federal programs even for keeping up with inflation. In other words, your local meals on wheels provider would receive from the government the same amount of money as last year to prepare a meal for a home-bound senior even if during the past year the cost of food, gas, utilities and other expenses had risen, which is likely.  Doing a CR for half of a year really makes running a government or an individual program difficult because no one knows if there will be funds or how much money for the second half of the budget period. For those who run the local meals on wheels program, how do they contract with food suppliers for a 12-month period thus getting and locking in the best prices? Do they hire someone to replace an employee who left in November when there’s no idea what funds they will have just a few months later mid-way through the budget year?

Fortunately, there are signs that Congress is taking serious steps to fund the government after March 27 for the rest of the fiscal year (until September 30) and to avoid a shut-down or even the threat of it. But there are major challenges. Many Republicans would like to keep the $85 billion in sequester cuts for the remainder of the year (and beyond). Many Democrats would like to off-set some of those cuts. Some would like federal agencies to be able to pick and choose what to cut, rather than having to cut all their programs equally by a set amount without being able to protect priority programs.

Summer: Debt Ceiling

The third date involves raising the debt ceiling, which is the limit on how much total debt the government can incur through borrowing. Senate and House budget leaders hope to reach some kind of agreement that can avoid the ugliness of a repeat battle over raising the debt limit.  Although that must be settled by sometime this summer it promises to be another bruising partisan fight unless some thoughtful and flexible leadership can be provided and followed. This will involve fierce debate over such things as changes in Medicare and Social Security, restoring funds for defense and national programs (like the FBI and the U.S. Park Service) and whether or not to generate additional revenue through tax policy.

When I was a kid (I’m hinting at my age) I loved going to the Saturday matinees. The feature film was accompanied by another installment of a weekly “serial.” These short episodes would end with some form of a cliff-hanger and we’d have to wait until the next Saturday to find out what happened.  In one episode I remember, the hero was atop a runaway stage coach careening along a cliff top with a bunch of bad guys shooting and giving chase. As the episode ended the hero was pitched off the side into the abyss. A week later we saw that he grabbed hold of a small bush growing out of the side of the cliff and was able to scamper to safety, at least until the end of the episode.

The challenge in December was to avoid the hero from falling into the abyss. When agreement was concluded the hero – in this case a whole bunch of Americans -- were clinging to the bush and safe for the moment. A collective sigh of relief went up. The only thing is, the hero was left hanging while the rescuers stepped back and moved on to other matters. The roots on the bush are loosening with one major root coming out on March 1. They’re still clinging to the bush and haven’t fallen off the cliff…yet. Stay tuned.

That’s the way I see it.