Today the Senate Appropriations Committee held a hearing on the impacts of sequestration, with testimony from a number of Cabinet officials on how the cuts would be implemented if sequestration does go into effect on March 1 as currently scheduled. Among those testifying before the committee on the impact on domestic, non-defense programs were Danny Werfel from the White House Office of Management and Budget (OMB), Department of Education Secretary Arne Duncan, and Department of Housing and Urban Development (HUD) Secretary Shaun Donovan. Other witnesses addressed the defense cuts.
Mr. Werfel warned of the “significant and destructive consequences” that sequestration will have on federal programs, including mental health, special education, and nutrition assistance. CWLA has covered the expected impacts of sequestration on funding for children’s programs. Werfel also pointed out that of the $2.5 trillion in deficit reduction that has already been enacted, 75% of the reductions have been achieved through spending cuts while only 25% have come through increased revenue. Meanwhile Secretaries Duncan and Donovan focused on the specific cuts their agencies would have to implement, including $600 million in special education cuts, the loss of Head Start services for 70,000 children, and cuts to housing assistance and emergency shelter programs.
It was clear from their opening statements that while neither Democrats nor Republicans are very fond of sequestration, the two parties have different levels of urgency in staving them off. This supports the general consensus that Democrats are more eager to prevent sequestration from going into effect while a number of Republicans seem to be resigned to, if not supportive of, sequestration. This discord makes it increasingly difficult to see how a Republican House and Democratic Senate can agree on a way to prevent the cuts by March 1.
The final year of the 112th Congress marked a continuation of the ongoing struggle between the Republican-controlled House and President Obama and the Democratic-controlled Senate over how to deal with the country’s federal deficit. This struggle took a number of forms: budget resolutions, the appropriations process, the continuing resolution (CR), sequestration, the debt ceiling, and the fiscal cliff. At the root of each of these clashes is a fundamental disagreement about how to bring the federal budget back into balance and to what extent increasing revenue, reforming entitlements, and cutting spending should play a role.
The year began with much uncertainty in the wake of the failure late in 2011 of the Congressional supercommittee tasked with crafting a deficit reduction plan that could pass both chambers. That failure triggered the countdown toward a round of across-the-board cuts to federal programs known as sequestration that were scheduled to go into effect in January, 2013 and would have a severe effect on funding for a number of children’s programs. The cuts, split evenly between defense and non-defense programs, were unpalatable to both parties, though an agreement about how to repeal or replace them remained elusive throughout the year.
Twice last year, in May and again in December, the House passed its plan to replace the scheduled defense cuts with additional cuts to non-defense programs, which included major cuts to Medicaid and elimination of the Social Services Block Grant (SSBG). Senate leaders and President Obama rejected that approach, preferring to include increased revenue in their deficit reduction approaches as opposed to solely balancing the budget via spending cuts. As 2013 begins, the sequestration cuts have been delayed until March, but a longer-term agreement to replace them has not yet been reached.
2012 ended with a partial resolution to the fiscal cliff the country was facing. Many of the tax issues, including the Bush tax cuts, the Alternative Minimum Tax, the Earned Income Tax Credit, the Child Tax Credit, and the Adoption Tax Credit have now been taken off the table. Still, a number of budget issues remain unresolved. As noted above, sequestration is still schedule to go into effect in March. The statutory debt limit is due for another increase in the next couple of months to prevent a U.S. default on its loan obligations. The CR the federal government is operating under also expires in March and funding for the final six months of Fiscal Year 2013 needs to be appropriated. Finally, negotiations between Congress and President Obama will likely resume shortly on a long-term deficit reduction plan. All of these looming pressure points highlight the continued vulnerability of federal discretionary and entitlement programs critical to children and families, and the need to maintain vigilance in our advocacy efforts in the year ahead.
Thanks to a last-minute agreement between the White House and Congressional leaders, the country will not be going over the so-called “fiscal cliff,” for now. The compromise extends a number of expiring tax cuts and programs while also forestalling for at least a couple of months the sequestration cuts scheduled to go into place. The House and Senate both passed legislation yesterday and President Obama is expected to sign it soon.
On taxes, the bill: permanently extends the Bush-era income tax cuts for families making $450,000 and less; includes a five year extension of the expanded Earned Income Tax Credit, Child Tax Credit, and college credit authorized by Obama’s stimulus bill; increases the taxes on capital gains and dividends for families making more than $450,000 from 15 to 20 percent; permanently patches the Alternative Minimum Tax (AMT) by adjusting it for inflation to protect middle class families; and modifies and extends the Bush-era estate tax cuts, among other things. It also reinstates limitations on itemized deductions for families making more than $300,000. Notably it does not extend Obama’s payroll tax cut originally included in the stimulus bill. The bill does include an extension of the Adoption Tax Credit. Federal extended unemployment benefits are extended for one more year under the agreement, the farm bill is extended for 9 months, and a one year “doc fix” is also included to prevent a cut in Medicare reimbursements to doctors. Finally, the sequestration cuts are delayed until March 1st, buying Congress two more months to work on a solution to replacing them.
While the compromise solves many of the vexing tax issues before Congress, it does not address long-term deficit reduction, or the pending increase in the federal debt ceiling that will be required soon. Over the next two months those issues as well as the sequestration cuts now scheduled to go into effect in March will be at the forefront of the next round of negotiations between President Obama and Congress.
Less than two weeks remain before the federal government reaches the fiscal cliff and Congress and the President are still far from reaching a settlement. Each side has inched closer to the other with respect to income taxes. President Obama’s most recent proposal included an extension of the expiring income tax cuts for those making up to $400,000 (up from his prior stance of $250,000). Meanwhile House Speaker John Boehner (R-OH) countered by suggesting they be extended for those making up to $1 million in his Plan B proposal. Note that the Senate has already passed legislation this year that would extend the tax cuts for those making up to $250,000 year. The Boehner offer, while rejected by the President, is significant in that it is the first time House Republican leadership has publicly supported allowing the tax cuts to expire for anyone. Still, both sides remain far apart on income taxes as well as on whether to cut entitlements, what to do about sequestration, and how to deal with another increase to the debt ceiling due for early 2013.
Absent an agreement with the White House, Boehner attempted to bring his Plan B proposal up for a vote in the House along with an updated version of the sequestration replacement bill authored by Paul Ryan (R-WI) and passed by the House in May that would replace the pending across-the-board cuts to defense programs with further cuts to non-defense, domestic programs. Lacking the votes to pass Boehner’s tax cut extension, that bill was pulled from the Floor late Thursday night. The sequestration replacement bill, however, passed along party lines by a 215-209 margin. That bill includes billions of dollars in cuts to SNAP (food stamps) and Medicaid while also eliminating the Social Services Block Grant, a critical funding source for child welfare programs. President Obama has threatened a veto and the Senate has repeatedly refused to take it up, but it is disconcerting at this late juncture that the House is still targeting these important social service programs.