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Sequestration looms large with fiscal cliff and Bush tax cuts in balance

Wednesday, October 10, 2012   (0 Comments)
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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 wins.

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 agreement whatsoever.

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.

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