Sunday, September 16, 2012

White House details fiscal cliff spending cuts

@CNNMoney September 14, 2012: 4:39 PM ET

NEW YORK (CNNMoney) -- Under pressure from Congress, the Obama administration on Friday detailed for the first time how more than $100 billion in spending cuts slated for January will ripple out across thousands of federal programs and projects.
The White House budget office, in a report mandated by Congress, said the cuts "would have a devastating impact on important defense and nondefense programs."

As a result of the so-called sequester, deficits would be reduced by nearly $1 trillion over 10 years. At the same time, economists say it could help push the country back into recession by abruptly pulling so much money out of the economy. (Related: CBO warns of fiscal cliff recession)
Cuts in domestic spending would affect everything from government salaries and private-sector contracts to research, air traffic control, border patrol, food safety, the FBI, housing programs, food assistance, after-school programs and education grants, according to the report.
Efforts by the Federal Emergency Management Agency to respond to terrorism or other catastrophic events would be undermined.
Military personnel and the Department of Veterans Affairs will be exempt from the budget ax. What's more, the Department of Defense would be able to shift funds so that critical military readiness would not be impaired, the report said.
But, it added, the scheduled defense cuts would reduce the readiness of many non-deployed units, delay investments in new equipment and facilities, cut back on needed repairs and reduce services for military families.
Top defense officials have warned that further cuts to defense could hurt national security. And defense contractors have been saying for months that the cuts could result in significant layoffs in their industry.
The White House budget office didn't estimate how many workers -- in the government or private sector -- would be fired or furloughed because of the cuts.
A senior administration official did allow that "this would have a significant effect on the federal workforce."
While some programs would be exempt from the cuts, most would not since the sequester calls for a largely across-the-board slashing of funds. Those cuts would fall disproportionately on discretionary programs and projects -- or those that Congress funds year to year.

Fiscal cliff: What's really in it

But some mandatory programs would feel the knife's edge as well.
Among programs subject to reductions, those in discretionary defense would be cut 9.4%. And nondefense programs would lose 8.2% of their funding.
Medicare would be reduced by 2%, but those cuts would only affect providers not benefits. Other mandatory programs would be cut between 7.6% and 10%.
The report is likely to be greeted with predictable horror by both Democrats and Republicans. That's because no one in Congress or the White House thinks the spending cuts are a good idea.
Passed as part of the Budget Control Act -- which put an end to last summer's bitter debt ceiling fight -- the automatic cuts were designed to be noxious to both sides of the aisle.
The intent was to force lawmakers to negotiate a bipartisan debt-reduction plan to replace the so-called sequester. But partisan division over taxes and other issues has thus far prevented any such negotiation from taking place. (Related: Now not the time for austerity)
"[N]o amount of planning can mitigate the effect of these cuts," the White House report stated. "Sequestration is a blunt and indiscriminate instrument. It is not the responsible way for our nation to achieve deficit reduction."
No one expects Congress to even begin to seriously address the issue in earnest until after the presidential election. And then lawmakers will have left themselves only a few weeks to both figure out how to replace the sequester and how to handle an unprecedented number of tax increases slated to go into effect next year. To top of page

First Published: September 14, 2012: 2:25 PM ET     

Fiscal cliff: What's really in it

 @CNNMoney August 6, 2012: 5:11 PM ET
    It's still unclear what lawmakers will do to address $7 trillion in looming tax increases and spending cuts. If they do nothing by Dec. 31, here's what will happen.

It's still unclear what lawmakers will do to address $7 trillion in looming tax increases and spending cuts. If they do nothing by Dec. 31, here's what will happen.
NEW YORK (CNNMoney) -- If lawmakers cannot agree on how to address the pending "fiscal cliff," $7 trillion worth of tax increases and spending cuts will begin to go into effect in January.
The smart money says Congress won't come close to an agreement before the November election, and that lawmakers may not even be able to reach one until early next year. At that point, of course, they'd need to undo at least some of the tax increases and spending cuts that went into effect.
In the meantime, uncertainty about just what Congress will do will weigh on the economy.
Here's a rundown of what happens if lawmakers fail to act before Jan. 1, 2013.
Automatic spending cuts
Since Congress has failed to reach abipartisan debt-reduction deal, the Budget Control Act requires automatic spending cuts to commence on Jan. 2 that will amount to $1.2 trillion in deficit reduction over 10 years.
Defense: $55 billion will be cut in 2013 from projected levels of discretionary defense spending. That translates into at least a 10% cut to every program, project and activity that's not explicitly exempt.
Nondefense: $55 billion will be cut from projected levels of nondefense spending, which includes things like education, food inspections and air travel safety. Budget experts estimate the cuts will result in at least an 8% cut to programs, projects and activities.
Bush tax cuts
The Bush tax cuts, the eternal partisan trip-wire, are all set to expire Dec. 31. As a result:
Income tax rates: Rise to 15%, 28%, 31%, 36% and 39.6%, up from 10%, 15%, 25%, 28%, 33% and 35%.
Capital gains rate: Rises to 20% from 15% for most filers.
Qualified dividend rate: Rises to one's top income tax rate, up from 15% for most filers.
PEP/Pease limitations: Restored. High-income households may not be able to take some itemized deductions and personal exemptions in full.
Child tax credit: Falls to $500 per child from $1,000. The refundable portion also reduced.
American Opportunity Tax Credit: Expires. The lesser value HOPE tax credit for college tuition is reinstated. Several smaller education tax benefits also expire.
Earned Income Tax Credit: Expansion of eligibility for the credit expires.
Marriage penalty relief: Expires. Effectively that means a low- or middle-income two-earner couple will owe more to the IRS than they would if they were single making the same income.
Estate tax:Parameters revert to pre-2001 levels. The exemption level falls to $1 million from $5 million; and the top tax rate on taxable estates rises to 55%, up from 35%.
AMT patch
Won't be renewed. Income exempt from the Alternative Minimum Tax in 2012 -- for which taxpayers will file returns next year -- falls to $33,750 for individuals and $45,000 for married couples. That's down from $50,600 and $78,750, respectively, if the exemption amounts had been adjusted for inflation.
As a result more than 30 million people will be hit by the so-called "wealth" tax, up from 4 million to date. (Related: Missing the big picture)
bipartisan bill from the Senate Finance Committee proposes a patch for 2012 and 2013 but it has not passed the Senate or House yet.
Payroll tax holiday
Expires. The Social Security tax rate reverts to 6.2%, up from 4.2%, on the first $110,100 in wages. Effectively, someone making $50,000 will pay another $1,000 in payroll taxes next year.
Unemployment benefits extension
The federal extension expires. That means workers who lose their jobs after July 1, 2012, will only receive up to 26 weeks in state unemployment benefits, down from as many as 99 weeks in state and federal benefits that had been available until recently.
Tax extenders
A host of smaller individual and business tax breaks will have expired. A bipartisan bill from the Senate Finance Committee proposes to extend many of them, but it has not passed the Senate or House yet.
Medicare doc fix
Expires. Medicare payment rates for physician services drops by 27%.
Some budget experts count as part of the fiscal cliff the onset of a newMedicare surtax on high-income households under health reform.
But unlike the other fiscal cliff tax provisions, the new tax was not written into law as a wink-wink "temporary" provision. It is, however, included to reflect the magnitude of tax increases set to take effect simultaneously in 2013.
A 0.9% surtax will apply to wages on earned income over $200,000 ($250,000 if married). That's on top of the 1.45% Medicare currently owed on all wages. Those making between $200,000 and $500,000, for instance, will only pay about $633 extra while households making $1 million or more would pay another $11,242.
3.8% Medicare surtax will also apply for the first time to at least a portion of high-income households' investment income. To top of page

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