Both the Senate and the House will be back in Washington on July 9 after their Fourth of July break. According to posted schedules, both chambers will break again on August 3 and return on September 10. The House is only scheduled to be in session for two weeks in September and one week in October, when Members go home to run for reelection. That leaves just seven weeks for the 112th Congress to act before the “lame duck” session begins after the November 6 election. Conventional wisdom is that they will not get much done before the election and the outcome of the Presidential contest is known.
Expiring at the end of calendar year 2012 are all the Bush era tax cuts, the 2009 tax cuts, the indexing for inflation of the Alternative Minimum Tax (AMT), the 2012 payroll tax holiday, emergency unemployment insurance, current Medicare payment rates for doctors, and a litany of other tax provisions. Looming immediately after the New Year is the implementation of the sequestration of federal discretionary spending required by the Budget Control Act of 2011 (BCA). All of these changes will occur if Congress does nothing between now and then. The Congressional Budget Office (CBO) estimates that the result would be $560 billion reduction to the federal deficit in one year. CBO also warns that these increases in household taxes and reduction in federal spending would have adverse consequences for the still struggling economy.
Because the consequences are predicted to be so dire, it is expected that Congress will have to take action before the New Year and the new Congress begins. There is legitimate fear that the best they will be able to do is pass temporary measures that delay decision making until next year. However, another school of thought is emerging that rather than facing a “fiscal cliff" on January 1, it is be more like a “fiscal slope.” Some are suggesting that it would be better to let all tax provisions expire and allow the new Congress to start afresh to shape tax policy for the future, not constrained by the current rules.
But preventing sequestration from going into effect will require action sooner. The cuts to both defense and non-defense discretionary programs are considered to be untenable. Sequestration will mean an 8.4% cut to program funding levels for most non-defense discretionary programs. These cuts likely will be across-the-board, with no departmental or agency control over how the sequester impacts individual programs.
Numerous lawmakers have already suggested that defense spending should be exempt from sequestration, which could result in cuts being shifted to non-defense discretionary programs. A coalition of organizations representing non-defense discretionary funded programs formed in to protect this funding in the debate about sequestration (see Memo, 6/22). Several legislators have already put forth proposals or introduced bills to replace the sequester with more severe spending reductions, or to exempt certain federal funding streams from sequestration. None of these proposals have moved forward.
The Administration has not made public any estimates of how sequestration will affect discretionary programs, despite urging from some members of Congress. The Senate Agriculture Reform, Food, and Jobs Act of 2012, S. 3240, requires the Administration to share the estimated program impacts of sequestration. Hopefully, if Members of Congress gain a greater understanding of the specific results of these cuts in their districts, a compromise can be reached.