The agreement reached by federal lawmakers on New Year’s Day (the American Taxpayer Relief Act of 2012) to avert the fiscal cliff was not the grand bargain that many had hoped for. Although the legislation made permanent many expiring tax cuts, the deal did not address the need to raise the debt limit or avert budget sequestration. Instead, action on those issues has been delayed for several months.
Congress allowed tax rates to increase for the first time in almost two decades by letting tax cuts expire for individuals who make more than $400,000 a year. The new tax rates will generate about $600 billion in new revenue over the next decade. The deal also extended a package of tax credits, including research and development expenses incurred by businesses.
The compromise delays the start of $1.2 trillion in automatic across-the-board spending cuts. Sequestration was scheduled to begin at the start of 2013, but will now be delayed for two months. Sequestration would have resulted in $586 million in cuts at the National Science Foundation, $2.5 billion in cuts at the National Institutes of Health, and $150 million in cuts from research and education programs at the Department of Agriculture this year. Nearly all other federal programs would have been impacted as well. Those cuts could still happen if lawmakers do not reach an agreement by early March on how to avert sequestration. The $24 billion cost of the delay of sequestration will be covered by new revenue and by $12 billion in alternative spending cuts to defense and non-defense programs over ten years.
Some lawmakers are unhappy that the law did not address all elements of the fiscal cliff, but rather kicked the proverbial can down the road. “We were trying to address the fiscal cliff and we spawned three more cliffs,” said Representative Xavier Becerra (D-CA). He said three battles will come in the next three months: a debt limit increase, sequestration, and expiration of funding for government programs under the current continuing resolution.
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