Americans who want to know what the “fiscal cliff” means for themselves and their country will find answers in a 16-page report issued last week by the Committee for a Responsible Federal Budget.
Readers may recall that the CRFB consists of a lot of smart people, such as former directors of the Congressional Budget Office (June O’Neill, Dan Crippen and Alice Rivlin), a former federal Federal Reserve chairman (Paul Volcker) and a former comptroller general of the United States (David M. Walker). The board also includes former members of Congress — both Democrats and Republicans, such as Alan Simpson of Wyoming.
The committee succinctly describes the problem: “At the end of 2012 and the beginning of 2013, many major fiscal events are set to occur all at once. They include the expiration of the 2001/2003/2010 tax cuts, the winding down of certain jobs provisions, the activation of the $1.2 trillion across-the-board sequester, an immediate and steep reduction in Medicare physician payments, the end of the Alternative Minimum Tax patches, and the need to once again raise the debt ceiling.”
The expiration of tax cuts and the start of across-the-board spending cuts as now set in law could seriously harm the fragile economic recovery and still won’t make changes needed to “address the drivers of our debt or strengthen the economy over the long-term.”
“Gradually phasing in well thought-out entitlements and tax reforms would be far preferable to large, blunt and abrupt savings upfront,” the CRFB said.
Then the CRFB warned: “The worst-case scenario would be for lawmakers to repeal the sequester and once again extend expiring debt-expanding policies without offsetting their costs.”
The sequester would require cutting $55 billion in defense spending from the January-September 2013 budget. According to Defense Secretary Leon Panetta, military personnel could be exempt from cuts, but civilian employees could be furloughed, contract employees could be reduced and 23-percent reductions in spending on major weapons and construction programs could bring construction to a halt while driving up unit costs of new weapons.
Also starting Jan. 1, the sequester would automatically pare $43 billion off the nondefense discretionary budget: veterans benefits and services, health, education, justice, transportation, science and more. The cut could amount to about 10 percent of budget for the remainder of the year.
An exception would be Medicare, which is limited by the sequester law to a 2 percent cut in what health care providers are paid. However, another temporary “fix” will expire, automatically cutting payments to doctors by an untenable 27 percent as required by
the Sustainable Growth Rate spending control provision that dates to the era of Bill Clinton and a GOP-controlled Congress.
If income taxes revert to what we paid during the Clinton presidency, just about everybody would see their taxes go up. Lower income taxpayers would pay about 3 percent more of their income in taxes while the wealthiest 20 percent of taxpayers would pay an additional 6 percent in taxes.
Those estimates also reflect the child tax credit reverting to $500 from $1,000 and the estate tax being reinstated to tax estate value exceeding $1 million.
The sequester was written last summer to have consequences so bad that both parties would work to avoid letting the cuts happen as the law provides.
That threat wasn’t enough for the Super Committee to overcome partisan discord last fall. Will it be enough to spur at least 60 senators and a majority of the 435-member House to compromise this year?
Only if both parties recognize they have more to lose by failing to enact thoughtful, comprehensive changes in spending and tax law.