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Posts Tagged ‘sequestration’

Piggy Bank with back to school messageIn this installment of our ongoing Budget 101 blog series, we’re exploring what was in the “fiscal cliff” package passed by Congress over the New Year’s holiday. Late last night, the House of Representatives passed the Senate bill to pull us back from the fiscal cliff — the combination of tax and spending changes that were set to go into effect today and could have sent the U.S. economy back into a recession. But the deal, which President Obama is expected to sign, dealt only with the tax changes and merely delayed the spending cuts known as sequestration.

AAUW commends lawmakers from both parties for coming together to reach a true compromise (look up how your senators and representative voted). Like any compromise, the deal is far from perfect, but it includes several AAUW-supported provisions that will help women and their families, such as

  • Returning to the Clinton-era tax rates for high-income earners while continuing the current rates for individuals earning less than $400,000 and families earning less than $450,000
  • Extending the American Opportunity Tax Credit, an AAUW-supported $2,500 tax credit to help college students and their families pay for tuition and related expenses
  • Ending the payroll tax holiday and returning to the previous rate of withholding, therefore protecting Social Security’s long-term solvency
  • Extending federal unemployment insurance for another year, benefiting those unemployed for longer than 26 weeks
  • Delaying the automatic, across-the-board spending cuts for two months, giving Congress more time to find a way to protect key programs like K–12 funding, Pell Grants, and family planning from sequestration

Although the automatic spending cuts have been delayed, they are still dangerous. In the next two months, Congress will need to find a solution to avoid deep cuts to important investments such as education, funding for civil rights enforcement, women’s health programs, and workforce training programs.

obama fiscal cliffThe 113th Congress, which begins on January 3, is in for a bumpy next few months. The sequestration delay is projected to end at roughly the same time the United States hits its newly set debt limit (early March), setting the scene for a pitched political fight. This will likely be followed by another battle when the current appropriations bill that is funding the government expires in late March.

AAUW is a nonpartisan organization, but we’re also multi-partisan, representing a variety of political affiliations and viewpoints. Despite our differences, AAUW members come together to get things done and serve our communities. Congress should do the same. AAUW members will continue to press Congress to support budget policies that further the principles of fairness and fiscal responsibility and protect women and their families.

Make your voice heard! Sign up for AAUW’s Action Network and speak up for women and families.

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One year after the debt ceiling crisis, Congress and the president again face a series of tough decisions regarding federal spending and deficit reduction. With so much at stake in this debate, we’re breaking down the details of the impending across-the-board cuts, also known as sequestration. This is the last post of Budget 101.

So far in the Budget 101 series, we’ve covered the current state of the federal budget, the impact of Bush-era tax policies, the payroll “tax holiday,” and the importance of unemployment insurance. In this post, we’ll discuss the sequester, what will happen if we go over the “fiscal cliff,” and what AAUW thinks elected officials should do.

Last year, as part of the agreement to raise the debt ceiling, Congress passed the Budget Control Act. There were two key aspects of this legislation. First, $917 billion had to be cut from the federal budget over the next decade. These automatic cuts have already begun with $21 billion removed from the fiscal year 2012 budget. The second part of the legislation created the Joint Select Committee on Deficit Reduction, the so-called super committee. Members of the committee, a small group of representatives and senators, were charged with producing a plan to cut at least $1.2 trillion from the deficit over the next decade. Congress gave itself an incentive to succeed — if the committee failed to produce a plan by November 23, 2011, or if Congress failed to pass one by December 23, 2011, $500 billion in automatic, across-the-board spending cuts (“sequestrations”) split between defense and non-defense spending would occur.

Congress failed in this mission, and sequestration now looms. The first cuts are expected in January 2013, and $109.3 billion in cuts will occur each year between 2013 and 2021. Social Security, Medicaid, civil and military employee pay, and veteran benefits will be exempted, and Medicare benefits will be limited to a 2 percent reduction.

While dramatically cutting the federal budget might sound appealing, it would come with real costs. One recent analysis found that implementing sequestration would mean, among many other things

  • Head Start would serve 96,179 fewer low-income children.
  • Five million fewer families would be served by the Maternal and Child Health Services Block Grant, which provides funding for prenatal care; well-child services; infant mortality, injury, and violence prevention; oral healthcare; school-based health programs; and eliminating racial and ethnic disparities.
  • 1,133,981 fewer students would receive grants for career and technical education.

Another point against sequestration is that it would not actually close the deficit. Although the proposed cuts would bring defense and domestic discretionary spending levels down to historic lows as a percentage of the U.S. economy, it would do little to stabilize or end the debt.

So what should Congress do to prevent the sequester and what political analysts are calling the “fiscal cliff” — the combination of sequestration’s spending cuts and the expiration of the Bush-era tax cuts, unemployment insurance extensions, and the payroll tax holiday — from wreaking havoc on  the economy in January 2013?

AAUW believes that any agreement must be balanced. We shouldn’t cut programs for the young, the old, and the vulnerable while protecting cuts to other programs. Any agreement must include additional revenues, not additional hardships.

Second, AAUW believes any agreement should create capacity, not destroy it. While some argue that Pell Grants for college students or job training for displaced workers is too expensive, think about how much human potential we would lose if we didn’t provide these opportunities. A few dollars spent today can create hundreds of dollars for our economy in the future. We shouldn’t risk our country’s capacity for greatness by cutting this funding.

Finally, AAUW strongly believes that any package must honor the commitments we’ve made to one another. Social Security, Medicare, and Medicaid are promises that we’ve made as a society — no one should starve or die because they’re too poor or too old. It’s that simple, and Congress needs to recognize that and leave these programs alone.

These are tough budgetary times, and we face difficult decisions as a country. But this argument isn’t just about numbers — it’s about who we are and who we want to be as a country. AAUW urges our elected officials to enact a sensible, balanced proposal that allows our economy to grow and lets Americans live in dignity and prosperity.

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One year after the debt ceiling crisis, Congress and the president again face a series of tough decisions regarding federal spending and deficit reduction. With so much at stake in this debate, we’ll be breaking down the details of the impending across-the-board cuts, also known as sequestration. Check back every Wednesday through October 10 for new posts, and catch up on Budget 101 by reading the lessons from the past few weeks.

The basic premise of the social safety net is that help is available when people are most in need. That’s why Medicaid enrollment expands when we’re in an economic recession — because more people meet the low-income eligibility requirements, which means that more people need assistance obtaining health care. The same thing happens with the Supplemental Nutrition Assistance Program, formerly known as food stamps. More people qualify for SNAP during recessions because more people struggle to put food on the table due to their lower incomes.

That’s also why one of the first actions Congress took when the economic crisis began was to create a temporary expansion of the unemployment insurance program that would provide additional weeks of benefits. In a normal economy, unemployment insurance — in the form of weekly checks — would be available for up to 26 weeks to people who lost their jobs through no fault of their own. But as the unemployment rate ticked up, lawmakers realized that the need was greater, which meant the social safety net had to adjust to fit the need. So in 2008, they created a program called Emergency Unemployment Compensation, which allows people to receive anywhere from 14 to 47 additional weeks of benefits depending on their state’s unemployment rate. A resident of a state with a higher unemployment rate would be eligible for more weeks of benefits.

Now, more than four years since that first extension, we are still dealing with a chronically high unemployment rate. Moreover, 40 percent of those who are unemployed have been without jobs for 27 weeks or longer, which means that they still need unemployment insurance beyond the initial 26 weeks. And at the same time, our country is facing a series of tax and budget changes that are slated to take effect at the beginning of January 2013 and are likely to impact the day-to-day lives of most Americans. One of the changes is the expiration of the Emergency Unemployment Compensation program. The question, though, is whether lawmakers will once again extend the Emergency Unemployment Compensation program or let it expire.

It’s a politically difficult decision to make because these benefits are real and tangible. In 2010 and 2011, the average weekly unemployment benefit was $300. That check could cover your utility bill, a grocery store trip, or an emergency car repair so you can make it to your next job interview.

In addition, unemployment insurance helps not only the recipient but also our economy as a whole. According to an analysis by the financial research organization Moody’s Analytics, for every dollar spent on unemployment insurance, $1.61 goes back into the U.S. economy, which makes unemployment insurance the most successful form of government stimulus. That’s because, as a Moody’s researcher told NPR, people who receive unemployment benefits tend to spend the money rather than save it, since the point of unemployment insurance is to replace a person’s lost income so she or he can still buy the necessities. Such consumer spending boosts economic growth and demand. You could correctly argue that unemployment insurance creates jobs.

Yet, as our Budget 101 series has shown thus far, these decisions are not so simple. The federal government has been footing the bill for the Emergency Unemployment Compensation program for more than four years, and with much attention focused on reducing the U.S. budget deficit, it’s a tough climate in which to argue that unemployment benefits should be extended further. In truth, these decisions are never simple, but this time, with the expiration of unemployment insurance coming at the same time as many other fiscal decisions, it is even more difficult.

Check back on October 10 for our next Budget 101 post, which will focus on upcoming automatic spending cuts, known as sequestration, and the projected impact of those cuts on women and families, education, and defense spending.

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One year after the debt ceiling crisis, Congress and the president again face a series of tough decisions regarding federal spending and deficit reduction. With so much at stake in this debate, we’ll be breaking down the details of the impending across-the-board cuts, also known as sequestration. Check back every Wednesday through October 10 for new posts, and catch up on Budget 101 by reading last week’s lesson and the first post in the series.

Social Security is funded through taxes on payroll, which include contributions from both employers and employees. This tax is officially known as Old-Age, Survivors, and Disability Insurance (OASDI), although it’s commonly referred to as the payroll tax. Currently, the tax rate is 4.2 percent for employees and 6.2 percent for employers on up to $110,000 of income. Before 2011, employers and employees paid the same amount. But the Tax Relief and Job Creation Act in 2010 reduced the tax rate paid by employees because the economic recovery had slowed and the president and Congress sought to boost workers’ take-home pay. The lower-rate “tax holiday” was extended through 2012 and is now set to expire on December 31. The Bush tax cuts are scheduled to expire around the same time, and sequestration — $500 billion in across-the-board cuts in discretionary spending split evenly between security and non-defense programs — also could go into effect after the New Year.

Although the 2012 tax-cut extension was offset by a transfer from the U.S. Treasury to the two Social Security trust funds, both the Old-Age and Survivors Insurance and the Disability Insurance trust funds are on track to be exhausted in the next 30 years — the OASI fund in 2035 and the DI fund in 2016. This does not mean that benefits will suddenly stop at that time. Rather, Social Security programs would be forced to “live within their means” and match payouts to income from payroll taxes, which would not cover the total benefits included in the programs today. According to the Center on Budget and Policy Priorities, the Social Security trust funds could pay for 75 percent of the scheduled benefits after 2033 but would only be able to cover 73 percent by 2086.

Sustaining the current level of benefits requires immediate attention. One way to strengthen the trust funds is to allow the payroll tax holiday to expire. According to trust fund data from the Social Security Administration, the payroll tax holiday reduced the share of income paid through employer and employee contributions to the Social Security trust funds from 82 percent to 70 percent between 2010 and 2011.

Allowing the payroll tax cut to expire may be politically unpopular, but it would be a great step toward protecting Social Security and disability insurance beneficiaries in the future. AAUW’s Public Policy Program advocates for strengthening retirement benefits and programs and for a Social Security program that provides inflation-protected, guaranteed lifetime benefits with a progressive benefit formula, spousal and widow benefits, and disability and survivor benefits. For these reasons, we believe allowing the payroll tax cut to expire is good policy that will benefit the Social Security trust funds in an immediate and tangible way.

Check back on October 3 for our next Budget 101 series post, which will focus on unemployment insurance.

This post was written by AAUW Public Policy Intern Madeline Shepherd.

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