Friday, December 14, 2012

What are the terms "Fiscal Cliff" and "Sequestration"?

You may have noticed the terms of "Fiscal Cliff" and "Sequestration" being discussed in the media recently, both of which will have negative impacts on the federal programs run by CAPs. Here is an explanation:

What is the "Fiscal Cliff"?

The “Fiscal Cliff” refers to the simultaneous expiration in January 2013 of several Federal tax and fiscal stimulus measures. It has four main pieces. The largest of which are the original Bush-era tax cuts, which reduces tax rates at all income levels. The second, which was implemented in 2010, was a cut to payroll taxes of two percentage points. The third, also implemented in 2010, was a succession of federal unemployment extensions. Finally, as part of an agreement reached in 2010 to raise the cap on Federal budget deficit spending (Budget Control Act of 2010), the U.S. Congress set up a system of across the board budget cuts that would take if a so-called congressional "Super Committee" (made up of Congressmen and Senators from both political parties) could not come to an agreement on a plan for reducing the Federal deficit. Since the committee failed in its task, a "Sequestration" was mandated.

What is "Sequestration"?

The Budget Control Act of 2010 sets out automatic spending cuts (“Sequestration”) that mandate cuts of $1.1 trillion in military and domestic spending over ten years.  Unless an agreement is reached between the President and the U.S. Congress by January 1, 2013, a cut of $100 million automatically will take place with a reduction of 9.4 percent to most military programs and 8.2 percent to most domestic spending.  However, with a Federal fiscal year that started on October 1, 2012, the true impact to our programs would be closer to 10 percent.