Fiscal Cliff Deal Leaves Research Cuts on the Horizon

On New Year’s day, the Senate and House passed legislation, American Taxpayer Relief Act of 2012, to address the tax portion of the fiscal cliff and delay the across-the-board cuts (a.k.a. “sequester”) to federal agencies by two months.

Bush-era tax rates made permanent for 99%- The legislation permanently extends 2012 tax rates for annual income below $400,000 for individuals and $450,000 for couples.

Across-the-board cuts delayed- According to the White House, “the agreement saves $24 billion, half in revenue and half from spending cuts which are divided equally between defense and non-defense, in order to delay the sequester for two months. This will give Congress time to work on a balanced plan to end the sequester permanently through a combination of additional revenue and spending cuts in a balanced manner.” The two month delay in the across-the-board cuts requires a $12 billion reduction in FY 2013 and FY 2014 spending, from the levels established in the Budget Control Act of 2011 (BCA). However, since the passage of the BCA in 2011, even lower levels of spending have been provided for FY13 as part of a Continuing Appropriations Resolution that was passed last fall to allow Congress additional time to assemble a permanent FY13 budget. As a result, the Congressional Budget Office has noted that the two month delay in the sequester may not actually require additional FY13 cuts. However, if Congress fails to find an alternative to the sequester in the next two months, federal agencies will be faced with the steep budget cuts discussed over the past 17 months. House Minority Leader Nancy Pelosi articulated a hope that the legislation sets a precedent that future deficit reduction efforts include equal parts additional revenues and spending cuts.

The budget battle now moves on to a new phase, which will see a shift in discussion from marginal income tax rates to spending reductions for federal agencies/programs and new limitations on tax loopholes. March 2013 will become the new deadline, as the nation will reach it’s debt limit at that time, resulting in a need for Congressional approval of an increase, and the sequester implementation will reemerge. Given the removal of tax rates from the budget discussion, increased pressure to cut federal agencies and programs is expected in the coming weeks. It will now be even more necessary for Members of Congress to hear from their constituents on the value derived from certain categories of federal spending. Members of the oral health research and education community are encouraged to visit the AADR Action Center for access to quick methods for contacting Congress.

White House Fact Sheet

Congressional Budget Office Analysis

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