Kicking the Fiscal Cliff Can Into the New Year

Joyce Wessel Raezer, Executive Director, National Military Family Association

Soldier Standing on a cliff

Among the fireworks and celebration that ushered in the New Year were the sounds of late-night Congressional votes and a can being kicked down the road. In a last-minute deal, Congress and President Obama agreed to fix, avoid, or delay the worst effects of the mix of tax increases, spending cuts, and Medicare doctor payment cuts that together came to be known as the “fiscal cliff.” As we described in our recent article on the fiscal cliff and military families, “The View From the Ledge,” the National Military Family Association was concerned about the effects of the required sequestration cuts to both military and civilian programs that support military families. We were also concerned about the threat to families’ health care access if a scheduled 27% cut to civilian doctors seeing TRICARE and Medicare payments occurred.

In the wee hours of the New Year, the Senate passed a compromise bill to keep the country from heading over the cliff. After some tense negotiation, the House agreed to the bill late New Year’s night. Like any compromise, the bill didn’t please everyone, but it did fix several issues important to military families, including a one-year extension of the Medicare/TRICARE doc fix, which will help protect families’ access to health care. If this extension had not been included, doctors caring for Medicare patients or military families using TRICARE would see their reimbursements cut by 27%. Many doctors had claimed this decrease would force them to stop treating their TRICARE patients or limit the number they could care for.

And what of those automatic cuts to federal spending, known as sequestration? The best Congressional leaders and the President could do was to postpone sequestration for two months. That compromise means the uncertainty about what will/could be cut will continue for military installations, schools that educate military kids, defense contractors, and all other military and community agencies that support military families.

Other provisions included in the compromise bill would:

  • Create a permanent fix for the Alternative Minimum Tax to prevent taxpayers from moving into higher tax brackets simply because of inflation—this fix was needed immediately to keep taxpayers from paying higher taxes on their 2012 income.
  • Permanently extend the Bush-era tax rates for all families earning less than $450,000.
  • Extend the expiring college tuition tax credit, $1,000 child tax credit, Earned Income Tax Credit eligibility, and the marriage penalty relief.
  • Increase the tax rate on capital gains and some estates.
  • Freeze Congressional pay.
  • Extend federal unemployment benefits for one year.
  • Extend provisions in the expiring farm bill by nine months. This extension is important to all milk lovers, who would have seen milk prices double at the grocery store without the extension.

The compromise bill did not extend the lower payroll tax rate of 4.2% in effect during the past two years through economic stimulus legislation. Therefore, the payroll tax workers pay to support Social Security will immediately return to 6.2%. Workers will see this change in their first paycheck of 2013. Experts estimate that the family earning an average of $50,000 per year will pay an additional $1,000 in payroll taxes this year.

Fiscal “Cliffhanger” Will Continue

While the New Year’s Congressional action gives the government and taxpayers some breathing room, we’re not out of the woods yet. The temporary delay of the sequestration cuts will combine with other pending budget events to continue the fiscal uncertainty facing our Nation. The new 113th Congress will need to address several serious issues soon after it begins work on January 3.

The compromise legislation did not include an increase to the debt ceiling and the Treasury Department estimates it will run out of ways to stay within the current ceiling by late February or early March, right about the time sequestration is now set to start.

The Continuing Resolution passed in September 2012 to fund government operations will expire on March 27. The new Congress must either pass individual appropriations measures or another Continuing Resolution for the rest of Fiscal Year (FY) 2013. Even as it cleans up the 2013 mess, Congress must begin its work on FY 2014 after it receives the administration’s budget proposal sometime in February. No one knows how the sequestration issue will play in the creation of the FY 2014 budget, but we do know all agencies, including the Defense Department, will have to factor in a second year of cuts agreed to as part of the 2011 Budget Control Act. Best guess is that DoD will again propose increases to TRICARE fees and will probably have to include some cuts in operations and maintenance accounts, which fund family programs.

The National Military Family Association appreciates the actions by Congress and the President to provide the fix to Medicare and TRICARE doctors. We remain concerned about the failure to address the potentially-devastating sequestration cuts to both civilian and military programs that could have a negative impact on military families. Worries about the potential effects of the sequestration cuts have created added stress for military communities for months. While the delay in sequestration will temporarily protect some needed support services, it also continues the uncertainty. There are enough uncertainties in military life today and a military community at war needs certainty that the Nation supports its service. We call on our Nation’s leaders to forge a more permanent solution that will preserve the strength of our service members and their families.

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