Sequestration looms large with fiscal cliff and Bush tax cuts in balance
Wednesday, October 10, 2012
The talk on the Hill these days is
the Lame Duck Session that is coming after the election and the great concern
about the fiscal cliff with its forced 10 percent across the board cut in the
federal government budget (known as sequestration) that is due to hit on
January 1. Members of both parties are itching for the debate. However, a
bipartisan group of Senators are working on a compromise.
The sequestration would impact
boating by cutting funding for the Sport Fish and Boating Trust Fund, which provides
money for fish restoration, boating safety, pump outs, fishing and boating
outreach, and boating access. Cuts would also hit the Coast Guard and the Army
Corps of Engineers. The Coast Guard could see funds for search & rescue and
boating safety cut, and the Corps could see its boating programs cut, including
dredging projects and lake management.
Sequestration will hit all federal departments.
Without Congressional action, up to
$600 billion of expiring tax cuts and automatic spending cuts are set to take
effect at the end of 2012. It they hit all at once, the impact could amount to
as much as a 4- to 5-percent reduction in gross national product. Most
economists are now saying this lack of Congressional action would be enough to
push the nation’s economy into another recession and major consequences for the
financial markets. Others are saying it is a good step to get our nation’s
fiscal house back in order.
The fiscal cliff is a result of an
extension of the Bush-era tax cuts for two years that ends on Dec. 31 and the
Budget Control Act of 2012 passed in August to extend the nation’s debt limit. That
act included a requirement that the debt limit could not be increased without
spending cuts equal to or greater than the amount of the debt limit increase.
So what will be the "grand bargain?” The
Super Committee failed last summer. Can Congress rescue the economy and the
nation’s budget? What are the options?
Option 1—Congress and the President
could agree to delay the issue to some time in 2013. If this occurs, the Bush tax cuts would not
expire and the tax increases would be delayed until after the next President
takes office. GOP candidate Romney has asked Congress to follow this path if he
Option 2—Compromise with partial
passage of some Bush tax cuts and some spending cuts. The true nature of a compromise would be
dependent on the election results.
Option 3—Over the cliff is a less
likely scenario with Congress and the White House failing to reach any
Option 4—The grand bargain, which is
probably a long shot for the Lame Duck Session, would be to reach an agreement
that would address spending reductions, tax reductions, and maintenance of the
federal government for the near term. Remember, the fiscal cliff issue will
come up again in 2013 when the debt ceiling issue comes before Congress.