Edging Closer to the Cliff

December 21, 2012

by Paula Skedsvold

With ten days to go (including the holidays) before the country heads over the fiscal cliff, the President and Congress still have a small window to agree on a bipartisan solution to avert it. Although the President and Speaker had been inching closer – only $200 billion apart in revenue and $70 billion in spending cuts – there is still no deal on the table. To some in both parties, going over the fiscal cliff may be a better solution than giving away too much in the negotiations. 

To get a better sense of how far apart the President Obama’s and Speaker Boehner’s offers and counteroffers are, the Washington Post provided a helpful chart earlier this week. The President’s most recent offer would cancel sequestration (the automatic across-the-board cuts of 8.2% to non-defense  and 9.4% to defense discretionary programs set to take effect on January 2, 2013) and replace them with cuts of $100 billion each to defense and non-defense (NDD), although cuts to NDD would not be implemented until after this fiscal year. Speaker Boehner’s latest offer, Plan B, would raise taxes on millionaires, but the bill was withdrawn shortly after its unveiling because it could not get enough Republican votes to pass it left unresolved a number of issues, including sequestration.

To be sure, under sequestration and any alternative plan under consideration, there will be significant cuts in discretionary spending. According to Eduardo Porter of The New York Times, “the truth is that both the President and House Republicans have agreed to shrink a critical part of the government to its smallest in at least half a century.” In addition, with no agreement, FY 2013 cuts would have to be spread over the last nine months of the fiscal year, since the fiscal year began on October 1, 2012. This would mean a 12-15% reduction to agency budgets, according to one analyst. Couple this with the fact that, absent a plan, the tax cuts will expire for everyone at the end of the year, and the need for a bipartisan compromise to keep the economy going is clear.

Given the uncertainty, the White House Office of Management and Budget issued a memo to federal agencies on Wednesday. According to Congressional Quarterly, the memo stated that, if there is no agreement, agencies would not notice funding changes immediately. However, “should we have to operate under reduced funding levels for an extended period of time, we may have to consider furloughs or other actions in the future,” the memo stated.

Michael A. McRobbie, President of Indiana University, summarized the impact of these cuts to research universities in The Chronicle of Higher Education

The stakes could hardly be higher for research universities, which are the engines that power much of the country’s scientific, technological, and economic growth. Universities account for more than half of the basic research conducted in the United States, work that often serves as the backbone of commercial research-and-development efforts by private sector companies. Those companies, which already collectively invest $250 billion a year in such efforts–much of it focused on the development side–simply don’t have the resources to devote to pure research on a scale needed to keep the United States at the forefront of scientific and technological innovation. That funding void has been filled to a large extent by the U.S. government, which pays for about 60 percent of the basic research conducted by American universities. The historical return for that federal investment has been spectacular by any measure—jobs created, economic output, contributions to the well-being of people around the world.”

Lawmakers will return to Washington, DC after the Christmas holiday, and we hope, will reach a bipartisan agreement on a reasonable path forward. Send a message to your elected federal officials and make your voice heard.