The View from the Ledge: The Fiscal Cliff and How it Affects Military Families
By Maranatha Bivens, Communications Editor
You’ve seen the scene before—the football playing, letterman jacket wearing, small-town-sweetheart finds himself on the wrong side of the tracks, and accepts a drag racing challenge from the east side toughs. The game is chicken, with both drivers racing toward dead man’s bluff to see who bails out first. Racing toward the cliff, small-town-sweetheart tries to get out of the car, but his seatbelt is stuck. Will he make it out before reaching the edge?
All fictional melodrama aside, our country is facing a similar challenge: reduce the national debt by early 2013 or go off the cliff. The fiscal cliff. “The fiscal what,” you say? Although the financial crisis of the last few years has likely touched most people’s lives in some way, many don’t know what the fiscal cliff is, let alone what our rapid approach toward it will mean for the country and military families.
Fiscal Cliff 101
The fiscal cliff refers to the effect of a number of laws which, if unchanged, could result in mandatory and automatic tax increases and spending cuts in 2013 to reduce the budget deficit. But first, some background.
In August 2011, the national debt hovered at almost 15 trillion dollars, and in a compromise to raise the debt ceiling, Congress passed the Budget Control Act of 2011. The Budget Control Act required $900 billion in tax cuts over 10 years (that’s 15% a year) and called for a Super Committee to find additional savings, split between Defense and non-Defense. Unfortunately, the Super Committee failed to agree on those savings and so, the Budget Control Act requires automatic spending cuts of $1.2 trillion over 10 years, of which $600 billion would come from the defense budget. In a process known as sequestration, the money would be held by the Treasury instead of given to agencies. Its effects will directly impact the lives of military families.
Sequestration: What Cuts Are On and Off the Table
Losing $600 billion dollars in the Defense budget will be devastating to military operations and is viewed as a threat to national security issues. But what, specifically, is in the line of fire?
Subject to Cuts
Most DoD accounts will face up to 9.4% in cuts equaling 54.67 billion dollars every year for the next 10 years and military service members and their families will see the immediate impact. Among the items to be cut are:
- Spending accounts for the war in Afghanistan
- Operations and Maintenance budgets: Think of everything that happens on your military installation—family programs, training, equipment, facility maintenance, DoD schools. All are funded out of Operations and Maintenance accounts.
- Defense Health Program accounts: Fewer funds available for DoD to purchase medications, pay civilian doctors for care, and operate military hospitals and clinics will affect access to care for military families.
- Commissaries: Budget cuts to commissary operating funds could lead to staff reductions, restricted hours, and possibly some store closures.
Cannot Be Cut
By law, some items are not subject to the sequestration cuts.
- Military pay and allowances accounts are exempt; however, sequestration will increase pressure to cut the DoD civilian workforce, most of which is funded out of those Operations and Maintenance accounts that are subject to cuts.
- Military retiree pay
- TRICARE for Life
- Social Security payments
- Medicare: except for 2% reduction in provider payments
- Medicaid grants to states
- Federal civilian pensions, health care, and pay rates
The only federal agency to be 100% exempt from any budget cuts is the Department of Veterans Affairs.
What Happens to the DoD Budget in 2013
Do the math. Here’s what happens to the amount proposed for some accounts important to military families if sequestration goes through.
| Proposal for Fiscal Year 2013
|| With Sequestration
| $32.5 billion for Healthcare
|| $29 billion
| $8.5 billion for family programming and DoD Schools
|| $7.9 billion
| $1 billion health care facilities
|| $.9 billion
| $1.7 billion for family housing
|| $1.5 billion
It’s important to realize that sequestration isn’t just about Defense cuts. Many military families receive help from programs that could potentially be affected by the non-defense sequestration cuts. The WIC Nutrition Program faces cuts of 8.2%, and the projected $543 million in cuts to WIC could mean that 700,000 moms and babies will not receive the food vouchers and nutrition education they need. Federal education programs also face an 8.2% cut, which would include $106 million in Impact Aid money that supports civilian schools educating military kids, $1 billion in cuts to special education programs, $140 million in cuts to student financial aid, and $1.3 billion in cuts to programs for disadvantaged youth.
As the lame duck 112th Congress (Members finishing out terms before the new Congress is sworn in in January 2013) resumes its work, no budget has passed for fiscal year 2013 and the U.S. debt has now reached $16.2 trillion. Although the President has signed a continuing resolution to fund the government through March, the debt ceiling will again be reached in early 2013. If changes are not made by the end of 2012, the average family tax bill will increase by $3,500 and after-tax income will decrease by 6.2%. Economic growth estimates will be reduced by 2.9% in the 1st half of 2013 and the unemployment rate is predicted to rise to 9.1% by the end of the year.
What Can/Will Congress, DoD, and the President Do?
After the November election, the President and Congressional leaders began meeting to see what could be done to keep the Fiscal Cliff from happening on January 1. No one knows whether they will come to an agreement or what mix of tax changes and spending cuts will be put in place. Many economic and business experts predict the lame duck Congress will delay sequestration and keep some of the tax cuts that are expiring at the end of the year. Although these actions seem like a good temporary fix, they could only prolong the nation’s uncertainty, prompt hiring and spending freezes, and increase the likelihood of another debt ceiling debate. Some economists and Members of Congress say the cuts should go through as scheduled and then the new Congress can look at what cuts work and what ones don’t (known as the “cliff diver” approach).
Either scenario keeps things uncertain for the Defense Department. Defense leaders insist DoD is only a small player in the bigger budget picture and that DoD is not planning for sequestration, but continuing to spend as usual. They also point out that, at least in the short term, DoD has some flexibility to move funds between accounts where needed.
The National Military Family Association believes what’s most important for our Nation’s leaders to remember is that the country is still at war. Military families need stability when recovering from deployments and need to feel secure when making other financial decisions. The solution to the nation’s financial issues starts with Congress, and with the military families facing impact from both Defense and non-Defense sides of the equation, their decisions couldn’t be more important.
What are your recommendations for resolving the fiscal cliff?
Until military families are relieved of the weight of war, we hope you will continue to contribute to their wellbeing.
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