Deal to Dodge the "Fiscal Cliff" is a Mixed Bag for Middle Class and Spending on Safety Net Programs

There is both good and bad news in the Congressional passage and Presidential signing of the deal that ended the “Fiscal Cliff” standoff.  For an overview of the elements of the Fiscal Deal, click here.

The good news is that across-the-board federal budget cuts outlined in the in the Policy Institute’s Sequestration Brief have been postponed for a matter of weeks, and perhaps averted altogether.   Lower Bush-era tax rates have been made permanent for all individuals earning less than $400,000 per year, and families earning less than $450,000. This is the overwhelming majority of NUL constituents. Unemployment insurance funding has been extended until the end of 2013, providing a lifeline for those without work for 26 weeks or longer.

The bad news is that the larger issue of meaningful deficit reduction has not been addressed, leaving NUL programming facing the same risk of budget cuts as was the case at the outset of the crisis, only with a reprieve of at least 6-8 weeks.   The end of the payroll tax holiday—which has lowered the 6.2 percent tax to fund social security to 4.2 percent for all American workers for the past two years—increases the cost of hiring for employers, and threatens an already weak recovery that has yet to lift the economic fortunes of black America.   In fact, the average American making $30,000 a year will see a decrease of about $960 in their annual take-home pay as a result of the end of the holiday.   And social safety net programs like Medicare, Medicaid, and Social Security, commonly referred to as “entitlement spending” survived today's political standoff intact, but will become the primary focus of future budget discussions.

Finally, the Fiscal Cliff, while important, offers far less fuel for political discord than the coming debate surrounding the raising of our national debt ceiling, or the amount of debt America can accumulate without Congressional approval. While the early discussions around the Fiscal Cliff talked of a potential so-called “grand bargain” that would address both issues, political realities soon took control. Neither political party demonstrated a desire to connect the two opportunities for negotiation with a single act of Congress.   Negotiators opted to concede only as much as the current circumstance required,  and retreat to the next opportunity to fight for a better deal as viewed by their constituents.

The Wall Street Journal gives the Fiscal Cliff deal a grade of “incomplete” as it proves to be the very definition of “kicking the can down the road.”

Funding Process in the 113^th Congress: A New Paradigm

NUL programs survived the Fiscal Cliff standoff largely intact, as did the tax status of working and middle class families. This is a victory that cannot be overstated. However, our communities must remain engaged and ready to make our voices heard, as the Fiscal Cliff standoff was only the first in what could be a long political battle on the path toward economic stability at the federal level.
 
It’s clear, however, that the current political climate—despite the ostensible goal of more “bi-partisanship”—will serve only to fuel more eleventh-hour wrangling when it comes to budget issues.  Look for the sequester (or cuts by any other name) to be postponed on an indefinite basis of starts and stops. At the same time, the cuts designated to pay for these postponements are never specified, until the final throes of the unending appropriations cycle, which will likely be the long-delayed passage of the FY2013 budget. Then there will be minor cuts to non-defense discretionary programs: minor in relation to the debt and deficit, but devastating as it relates to our programs. The only hope for breaking this cycle is for democrats to regain leadership in the House in 2014. Aside from that, a wagering person can chart out each point in which we will renew this process throughout the 113th Congress.
 
This “new normal” will call for organizations like the Urban League to become more nimble and proficient at mobilizing in defense of their funding streams with unyielding vigilance.  This means integrating local and state apparatus in lock step with the federal budget battle. The opportunity to lose (or retain) funding will come in waves, as the new appropriations process will evolve to be more of a campaign rather than a finite process.. The philosophical battle over how revenues will be raised and spending reduced, will be fought one impasse at a time for the foreseeable future. In addition to non-defense discretionary spending, other critical programs and provisions will likely be addressed in a creeping incremental approach: entitlement spending, the mortgage interest deduction, student loan financing, FHA mortgage assistance programs, and more. While there are variables both political and economic that could change this calculus, these are realities that are clearly evident today.