Sequestration and the Fiscal Cliff

When I started considering the idea of writing a blog, I thought about actually keeping two separate blogs- one more professional about weighty topics, and one that I would use to keep in touch with family and friends while I’m away and share my adventures.  (During my previous sabbatical in Knoxville, the “Adventures of the Tennessee Yankee” emails were quite popular.)  Fortunately, my advisory friends, who are wiser than I, suggested that I would be lucky to have time for one blog, much less two.  They were so right!  Thus this blog is a blend of my professional experiences and my personal adventures.  Since I’ve focused on some of my adventures lately, it’s time for a civics lesson.

Having gotten beyond the election, the issue that is getting the most attention and the most discussion in the Capital these days is the Fiscal Cliff, referring to the automatic spending cuts combined with the end of the Bush-era tax cuts that are all due to hit in January 2013.

In case you’ve been avoiding the news, here’s the history. The Budget Control Act (BCA- sometimes I think I’m drowning in acronyms!) was passed by Congress and signed by the President in 2011, which was the most recent time they raised the debt ceiling on how much money the Federal government could borrow.  In recognition that the short term debt was necessary, but long term debt is highly undesirable, there were provisions in the BCA to try to prevent the situation from getting out of hand.  The higher borrowing limit was counterbalanced by spending cuts were targeted over a ten year period, starting in 2012.  The problem has been that no one could decide how to accomplish these cuts.

That’s where the Joint Select Committee on Deficit Reduction came in, better known as the supercommittee from in the summer of 2011.  It was a bipartisan committee who tried to come to an agreement about how to reduce the deficit.  Anyone who has dealt with a household budget knows that getting out of debt requires some combination of spending less and earning more money.  The Republicans on the supercommittee favored spending less through budget cuts.  The Democrats on the supercommittee wanted to combine spending less with earning more money, and in government terms, that generally deals with taxes.  Because the members of the supercommittee could not agree on a plan, it triggered another provision in the Budget Control Act,

At the time that the BCA was passed, everyone agreed that the deficit had to be reined in, one way or another.  The follow up provision if the supercommittee was unable to make a deal was that automatic “across the board” cuts in spending, called “sequestration” are being triggered, and those cuts are scheduled to begin in 2013.  Unfortunately, the tax cuts passed by President (George W.) Bush also run out at the end of 2012, so there are two separate financial binds that will hit the country simultaneously.  That’s why the whole situation is being referred to as the Fiscal Cliff.

To use an analogy, if I think about Hurricane Sandy and its recent damage, the people who expected to be affected had a chance to do some planning.  They could evacuate, they could gather supplies, and they could even take actions to reduce the damage.  I read a story over the weekend of a man in Manhattan who owns a wine store, and with the help of many friends, he managed to move about half of his inventory to a higher floor in his building so his damages were still significant, but were reduced from what might have been had he not planned well.  Taking action on the sequestration and tax cuts allows the situation to be handled like Sandy.  Not taking action will result in a situation more like a house fire, which doesn’t give the chance to prioritize what might be saved.

What was not obvious to me until I had my two week intensive introduction to American government during Fellows orientation is that “across the board” does not actually apply to the entire Federal budget.  There are programs in the budget that are mandated, sometimes known as “entitlements” that are not affected by the sequestration cuts.  These programs include Social Security, military pay, and Medicaid, and the spending on these programs depends on a formula. A person who worked a certain length of time, is a certain age, and who put a certain amount of money into the system will get a monthly stipend of a certain amount.  It’s difficult to control spending on these programs since in order to change the amount spent, the formula must change.  Medicare, another one of the mandated programs, will see a 2% cut at most.  So the automatic funding cuts of sequestration hit the rest of the budget, known as discretionary spending, divided roughly into spending on defense and spending on everything else.  If you look at the graphic below, you’ll see that the mandatory spending pieces make up about 60% of the budget.

 

If sequestration occurs, then programs in education, the arts, infrastructure, and defense will all see a drastic reduction in funding.  Research scientists are particularly concerned about the effect of cuts on funding from sources such as the National Institutes of Health (NIH) and the National Science Foundation (NSF).  Depending on the program, between five and 20% of the proposals submitted to these agencies currently receive funding, and sequestration cuts would further hinder science and technology progress.

So what is to be done?  This is obviously a high priority for all the lawmakers in Washington, and the news is carrying stories of numerous people who are trying to find solutions ranging from the President to the Gang of 8, a bipartisan group of eight Senators who are discussing options. As for giving you the inside scoop, these decisions are all being made above my pay grade, and I don’t have any insights to share.

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2 Comments

Filed under Work

2 responses to “Sequestration and the Fiscal Cliff

  1. Bob

    I was hoping you’d have some insider information. It sounds like congress, even more than the rest of the country, is still in the dark.

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