And Congress won’t step back

Congress and the White House continue to work behind doors on a possible deal to avoid automatic tax hikes and government cuts Jan. 1, the proverbial fiscal cliff.

The sequestration cuts were supposed to be so deep and such a bitter political pill to swallow that Congress would surely get a budget deal passed to rein in spending.  Everyone’s taxes would go up; programs that many people depend upon will be trimmed by 7 to 8 percent; and there would be massive cuts in defense.

But here we are, days before the deadline and no deal.

Republican Senator John Thune says it is “encouraging that people are talking.  I think in the end we will get a deal, but the question is the timing of that.”  But he noted that the two sides are still at odds.  “Democrats haven’t been willing to discuss the issue of spending,” he explained.

Democratic Senator Tim Johnson wants a new farm bill in the year-end legislation, noting that the bill has $23 billion in deficit reductions.  “South Dakota farmers and ranchers deserve the certainty of a five-year farm bill,” Johnson explained.  But with no similar action in the House, odds are not in favor of this addition.

If they reach a deal, all the hand wringing can be considered OBE (overcome by events).  If no deal is reached, expect some financial and social trauma due to congressional impotence.

The big picture is that without a budget deal by Monday night, there will be $1.2 trillion in deficit-reduction measures over nine years; $109 billion in cuts just for 2013 according to the executive office of the President.

What does that mean for you?  As taxpayers, here is a little breakdown:

• Almost every tax cut since 2001 will expire.  Taxes will go up an average of $3,500 per household and $2,000 for middle-income households according to the Tax Policy Center.
• Social Security taxes will go up.
• An estimated 30 million more taxpayers will be caught in the AMT (Alternative Minimum Tax) net.  Without the annual “patch” by Congress, this is lowered to $45,000 for joint filers and $33,750 for single taxpayers, on their 2012 returns.
• Confusion over the cuts means taxpayers will be later in filing and the IRS later in mailing out returns which would take billions of dollars out of the economy for the first half of 2013.  This could slow economic recovery which has been gaining ground lately.

Program cuts:

• The only areas exempt from sequestration cuts are military pay, Social Security and Medicare benefits.
• Defense cuts amount to $54.7 billion a year.  This is on top of a recent $500 billion cut.  Ellsworth Air Force Base will be affected but it is unknown by how much.  Base missions are solid:  drone aircraft are cheaper than manned; and the defense shift to focus on the Pacific fits well with the B-1 bomber capabilities.
• There will be a 2 percent cut in payments to Medicare providers ($11 billion a year).
• National Park Service loses $183 million.
• Food safety cuts are $86 million.

The list goes on.  Education funding, highway construction, medical research, child immunizations, low-income energy assistance all take hits.  A report by Sen. Tom Harkin (D-Iowa) gives a pretty good break-down on sequestration impact on jobs and services; down to the state level.

South Dakota is already bracing for cuts in federal spending.  About 10 percent of the state’s budget would be affected by sequestration cuts; a bigger hit than most states, estimated at $29 million.  The state legislature, having to have a balanced budget, will have to cut programs, raise taxes or do a combination of both to make up for the federal cuts.

Of course, there is a third option for Congress; one that both political parties have used in the past.  Congress could just extend the deadline, once again kicking the can down the road from six to 12 months.