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"Fiscal cliff": It's more than just taxes

If you're just tuning in to the "fiscal cliff" debate, you're excused for thinking that all that's up for discussion is whether to extend the Bush tax cuts for all Americans or just those making less than $250,000 a year. But there's another major part of the "cliff" that, while a big part of the debate during the presidential campaign, hasn't been talked about much since: the sequester.


As a refresher, the sequester is a series of across-the-board automatic spending cuts totaling $1.2 trillion over 10 years set to go into effect on January 2. It was created by Congress last year as a result of negotiations to lift the debt ceiling. It's a law no one likes - but that was the point. Its purpose was to provide incentive for Congress to agree to deficit reduction measures, something they failed to do. Therefore the spending cuts will shave a little off many government programs, even the popular ones.

It has perhaps received less attention since President Obama won reelection because his priority is the other part of the "cliff" - taxes. Since he won, he has focused his push on extending the Bush-era tax cuts for the middle class but letting them expire for the wealthy, effectively raising taxes on those making more than $250,000. Republicans have responded by arguing if taxes are to go up, then there should be more spending cuts in exchange, proposing that changes be made to Social Security, Medicare and Medicaid, which aren't even a part of the "fiscal cliff."

The Republicans' emphasis on spending is part of their attempt to regain control of the narrative.

"We all know that we've had this spending crisis coming at us like a freight train and it has to be dealt with," House Speaker John Boehner said Wednesday. "And in order to try to come to an agreement Republicans are willing to put revenue on the table, but it's time for the president and Democrats to get serious about the spending problem that our country has."

Meanwhile, House Minority Leader Nancy Pelosi on Wednesday wrote off the idea that Democrats aren't open to cuts and placed the onus on the Republicans to produce some ideas to increase revenue.

"It's important to note that we have already agreed to over a trillion and a half in cuts in both the budget control act and other acts in this session of Congress and so now we're looking to see what the revenue piece will be to that," Pelosi said

Although the sequester has fallen off the radar, it is wrapped up in complicated budget cuts that will be difficult for both sides to make. It is still a major point of the "fiscal cliff" and negotiations will not be easy as Democrats want to save social programs and cut less while Republicans want to spare defense spending but make larger cuts to other parts of the budget.


The budget cuts would total $109 billion in 2013, which might not seem like a lot in a $3.6 trillion budget, but the cuts are coming from a small portion of the budget pie - about $1 trillion worth.

What won't be cut:

Mandatory spending, or entitlement programs, since those are part of the budget that Congress can't direct. Its funding amount is determined by program enrollment not cost, and it consumes about 55 percent of the budget (not including interest on the debt) and much of that is exempt from the sequester.

Programs that are exempt include Medicare (most of it anyway, see below) Medicaid, Social Security and the children's health insurance program known as SCHIP. It also includes food stamps, veterans benefits and Pell Grants. Some mandatory spending programs, including unemployment benefits and some tax credits, are part of the "fiscal cliff" but not part of the sequester.

What will be cut:

Entitlements: OK, we just said that entitlements won't be cut, but some entitlements will receive a 7.6 percent cut across the board, though benefits won't be affected. The biggest chunk of this section is cuts to Medicare providers - not beneficiaries. Nurses, doctors, and insurance plans would receive a two percent cut in their payments.

In addition, farm subsidies would see reductions and states would see cuts in grants that provide funding social services departments as well as vocation and rehabilitation programs. It is a certainty that states will fight for that funding to stay in place.

Defense Spending: This is an area where Republicans are likely to launch a major opposition campaign because defense programs would receive a 9.4 to 10 percent reduction from its 2013 budget of $580 billion, or about $55 billion. Although the president exempted military personnel pay and benefits, defense programs, including weapons and procurement programs, are subject to half of the automatic budget cuts, even though defense programs are about one-fifth of the federal budget. States that have a very large defense presence have been very vocal about opposing these cuts.

Discretionary Spending: Subject to about 40 percent of the budget cuts in the sequester are discretionary programs. Programs in this budget category, which is one of the smallest slivers of the federal budget pie, are programs Democrats are likely to try and protect.

Programs subject to cuts include international aid, funding for NASA and the Department of Energy's research program. It would cut funding for national parks and resources for the Environmental Protection Agency's toxic waste and water clean up programs. States and cities would see cuts to education funding and community block grants, funding that gives local entities the flexibility to fund necessary programs. Job training programs would also be on the chopping block. Funds for Section 8  and public housing programs, homeless shelters, law enforcement, Head Start programs and low-income heating assistance would also be cut.