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Tax deal in the works, but sequestration cuts appear likely

Dec. 31, 2012 - 03:22PM   |  
By STEPHEN LOSEY   |   Comments
President Obama delivers remarks about the fiscal cliff negotiations in the Eisenhower Executive Office Building next to the White House on Dec. 31.
President Obama delivers remarks about the fiscal cliff negotiations in the Eisenhower Executive Office Building next to the White House on Dec. 31. (Chip Somodevilla / Getty Images)

Vice President Joe Biden and Senate Minority Leader Mitch McConnell, R-Ky., are closing in on a deal to partially avert the fiscal cliff’s tax increases. But their plan contains nothing to delay or replace the steep budget cuts known as sequestration.

With only hours left to strike a deal, it is virtually certain that the sequestration cuts — amounting to $109 billion in fiscal 2013 — will start to go into effect Jan. 2. The cuts amount to 8.2 percent for nondefense programs and 9.4 percent for defense programs, according to White House budget office estimates.

The full brunt of sequestration’s cuts will not be felt right away. The Defense Department, for example, will likely freeze hiring quickly, but it will take several weeks for the Pentagon to send furlough notices out to its employees. And the actual furloughs, if necessary, would probably take effect months from now. Other agencies are likely to take similar steps.

Agencies will also have some flexibility on when the cuts are put into place. The bulk of the budget cuts could come later this year.

President Obama on Monday said that a deal averting income tax increases was “within sight, but it’s not done.” The Associated Press reported that the deal would raise tax rates for families making more than $450,000, raise the estate tax rate, and extend unemployment benefits for one year.

But Obama also said that the sequestration cuts are “a piece of business that still has to be taken care of.” Any effort to eliminate those cuts must be balanced, he said.

The 2011 Budget Control Act requires the automatic budget cuts unless Congress and the Obama administration agree on a plan to reduce future long-term deficits by $1.2 trillion by 2021. Sequestration was intended to be so onerous that the government would have no choice but to come together to cut the deficit, but that plan is evidently failing.

“There are some programs scheduled to be cut that we’re using an axe [on] instead of a scalpel,” Obama said. They “may not always be the smartest cuts.”

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