CHN: Congressional Leaders and Administration Agree on 6-Month Spending Outline; But Automatic Spending Cuts and Tax Increases Still Loom

Article from the August 7, 2012 edition of the CHN Human Needs Report:
As the October 1 start of the new fiscal year draws near, Congress has set forth a path to avert what has become an annual question: “Will they (Congress) allow the government to shut down?”  Democrats and the Administration have endorsed the timetable originally proposed by conservative Republicans to fund the government for six months, through March of next year.  The plan will be based on the $1.047 trillion funding cap for annually appropriated programs for fiscal year (FY) 2013 established in the 2011 Budget Control Act (BCA) and used by Senate Democrats and the Obama Administration to set FY 2013 funding.  This amount is $4 billion above this year’s level of $1.043 trillion.  The continuing resolution (CR) will start from FY 2012 program levels, with the expectation that urgently needed funds beyond FY 2012 amounts will be added, with details to be worked out during the August recess.  A vote on the CR will occur in September before Congress leaves for election campaigning.  If passed as expected, this takes regular appropriations off the table during the post-election lame duck session when the biggest issues will be the impending across-the-board sequestration cuts set to take effect on January 1 and the expiration of the Bush-era tax cuts on December 31.  (See article on taxes in this Human Needs Report.)

Prior to the agreement on the CR both the House and Senate had passed 11 of the 12 appropriations bills in their Appropriations Committees and the full House had passed to 6 of them.  None of the bills has been signed into law.  The Interior-Environment bill in the Senate and Labor-HHS-Education in the House saw the least action.  The Senate Interior-Environment bill was pulled from consideration in committee to prevent Senate Republicans from offering policy rider amendments attacking Environmental Protection Agency regulations. The House had approved its Labor-HHS-Education bill in subcommittee, with funding $6.8 billion below the enacted level for FY 2012 and $8.8 billion less than the Senate Committee’s Labor-HHS-Ed bill (S. 3295).  The bill, which defunded the health care law, was anathema to Democrats and portended a contentious road ahead.  See details of the House Labor-HHS-Ed bill in the July 24 Human Needs Report.

All the bills the House passed were based on the much lower overall funding level of $1.028 trillion.  Betting on being in a stronger position after the election when they hope to reduce funding, Republicans have agreed for now to the higher spending level for the CR and to set aside controversial policy riders in the bills.  Some Democrats believe that their party would have had greater leverage to finalize a more favorable deal with a 3-month CR that expired at the end of December. Recalling how last summer Republicans held an increase in the debt ceiling hostage in exchange for tight spending caps but no new revenues, some Democrats are leery of a 6-month deal that would expire around the time Congress will also need to act on increasing the debt ceiling.

More Cuts:  Separate from the funding levels approved for regular FY 2013 spending, both defense and non-defense are set to be cut from current levels by $55 billion each in FY 2013 unless a deficit reduction deal is reached by January 1.  Each program that is not exempt will be subject to across-the-board cuts (aka “sequestration”).  (Last week the Administration said that military personnel would be exempt.)  The BCA’s drafters included sequestration to push Congress to enact a deficit reduction plan in order to avoid unpopular reductions to defense and non-defense programs.  No one thinks the automatic sequestration cuts are an appropriate way to achieve deficit reduction.  Defense contractors and their allies in Congress have been particularly aggressive in beating the drum about the dire consequences sequestration would have on military jobs and capabilities.  Some have called for reconfiguring sequestration so that more of the cuts would fall on non-defense programs.  Democrats and the Administration have stood firmly against such a strategy.  In fact, many military analysts believe there is room for more cuts in the Department of Defense budget if implemented rationally.  On July 19 during consideration of its FY 2013 Defense Appropriations bill, in a sign that resistance may be lessening to cutting military spending, the House adopted 247-167 a bipartisan amendment co-sponsored by Representatives Mick Mulvaney (R-SC) and Barney Frank (D-MA) that would reduce spending by $1.1 billion.  While the cut is small compared to the bill’s overall cost of nearly $606 billion, the vote was significant.

On August 1 Acting Director of the Office of Management and Budget Jeff Zients stated in testimony before the House Armed Services Committee, “A great deal has been written about the devastating effects the sequester will have on defense programs,…. But less attention has been paid to the equally destructive effects sequestration will have on non-defense programs.  An eight percent reduction in non-defense discretionary funding would cause severe harm to many of the investments most critical to our country’s long term economic growth. More than 16,000 teachers and aides responsible for educating thousands of children would lose their jobs. In addition, 700,000 women and children would lose the nutrition assistance they need to remain healthy. 100,000 kids would lose places in Head Start, which helps them begin school ready to learn. The National Institutes of Health would have to halt or curtail vital science, such as research on cancer and childhood diseases. Let me underscore this point — the across-the-board cut required by the BCA would jeopardize critical programs that improve children’s health and education, adversely impacting future generations.”  See full testimony here.

Similar concerns are at the heart of the report “Under Threat: Sequestrations Impact on Nondefense Jobs and Services” issued by Senate Labor-HHS-Ed Subcommittee Chairman Tom Harkin (D-IA) on July 25.  It provides a detailed state-level analysis of sequestration’s effects on education, health, social services, and labor programs.  The report goes beyond estimated funding cuts to show the numbers of people who would lose services and workers who would lose jobs.

The 10-year budget caps in the BCA reduce the deficit by $1 trillion, all from cutting spending.  Advocates believe that the deficit needs to be addressed in a responsible way through a balanced approach that unequivocally needs to include significant new revenues.

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