The bill approved by the House and Senate on Jan. 1 delays sequestration until March. (Drew Angerer / Getty Images)
The nation stepped back Tuesday from the so-called fiscal cliff that had threatened big cuts in defense spending. But the deal could potentially make the automatic budget cuts known as sequestration even harsher on military programs if a deficit and debt agreement cannot be reached between Congress and the White House by a new deadline.
The American Taxpayer Relief Act of 2012, a bipartisan agreement reached New Year's Eve and passed New Year's Day by the House and Senate extends individual, business and energy tax breaks and also extends for one-year unemployment benefits that were due to expire Jan. 1. But it only delays until March 1 the across-the-board budget cuts that were supposed to be triggered Jan. 2.
Beside leaving alive the threat of sequestration if Congress and the White House cannot agree on a $1.2 trillion deficit reduction plan, the agreement does not address what to do now that the nation has reached the $16.3 trillion cap on borrowing power. It also does not address the fact federal agencies will run out of money on March 27 when a temporary funding bill expires.
Recognizing the limitations, Rep. David Dreier, R-Calif., the House Rules Committee chairman who retires from Congress in two says, said the agreement still is "a very important first step" toward getting the U.S. back on a path of economic progress.
Passage of the bill came New Year's Day in the early morning hours by the Senate, which passed it on an 89-8 vote, and in a late-night session of the House, which passed it on a 257-167 vote. President Obama is expected to quickly sign the measure.
The core of the bill, HR 8, prevents most income tax rates from reverting to pre-Bush administration levels, something estimated by the nonprofit Tax Foundation to save the typical family of four from a $3,500 a year tax increase.
But some taxes will increase. Nothing in the agreement prevents payroll taxes for Social Security from increasing to 6.2 percent on Jan. 1 — a jump of 2 percentage points — for all taxpayers. On a taxable income of $25,000, the result is about $500 more deducted from paychecks in 2013. Additionally, the agreement increases income tax rates for individuals with annual taxable incomes of more than $400,000 and joint-filers making more than $450,000.
The bill delays by two months the across-the-board budget cuts due to take effect Jan. 2 under the sequestration procedures of the 2011 Budget Control Act. By delaying, but not preventing, sequestration, the agreement leaves the Defense Department at risk of being forced to cut $57 billion to $63 billion from the 2013 budget while also giving them less time, which means less flexibility, in making the cuts.
DoD previously had eight months to make a 9.4 percent reduction in all programs other than military personnel, which are exempt from 2013 cuts under waiver authority being used by President Obama. Delaying sequestration's target date to March 1 leaves the Pentagon threatened with the same cuts but with just six months to make them if sequestration were to occur.
For example, defense officials have been warning Congress that unpaid furloughs for the military's 800,000 civilian workers were among the options being considered. These furloughs would be more disruptive if they had to be accomplished in a shorter period of time.
Deferred maintenance and repairs to military facilities is another place where defense officials expect to save. Saving the same amount of money in less time is likely to force even tighter rules on what types of repairs are made. In the past, when base maintenance funds have been tight, the services have resort to deferring maintenance on family housing, even not repairing toilets in on-base housing if a unit has more than one bathroom.
Rep. Buck McKeon, R-Calif., the House Armed Services Committee chairman who spent 2012 trying to find a way to protect DoD from sequestration, said he supports HR 8 "with important reservations."
"Rather than shield a wartime military from further reductions, this deal leaves the force vulnerable to sequestration's devastating and arbitrary cuts and it leaves Congress and the President with much work to do to end the crisis," McKeon said.
"Every day of uncertainty over further reductions limits our ability to fight the war in Afghanistan , keep Americans free from harm at home, and prevent potential conflict abroad," McKeon said, urging Congress and President Obama to "resolve the deep threat of sequestration immediately."
Senate Majority Leader Harry Reid, D-Nev., said Jan. 1 that he wished an agreement could have been reached to resolve sequestration, the looming debt limit crisis and the mid-year extension of funding for federal agencies required by March 27 because the government is operating under a temporary appropriations bill as a result of the inability to agree on funding priorities.
"I am disappointed we were not able to make the ‘grand bargain,' as we have tried to do for so long, but we tried," Reid said on the Senate floor.
"If we do nothing, the threat of a recession is very real," Reid said. "Passing this agreement does not mean negotiations halt. We can all agree there is more work to be done."
Sen. Mitch McConnell of Kentucky , the Senate GOP leader who negotiated details of the agreement in direct talks with Vice President Biden, said he also hoped Congress can do better.
"It shouldn't have taken us this long to come to an agreement, and this shouldn't be the model for how we do things around here."