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Eye on the ‘Fiscal Cliff’ Part II: Four Ways the Cliff Will Affect Gov’t

Dec. 11, 2012 3:17pm Becket Adams

While a great deal of attention has been given to the tax increases included in the impending “fiscal cliff,” very little has been given to the across-the-board spending cuts.

Considering the fact that the “cliff” includes a 8.2 percent budget cut to all federal discretionary spending programs — and the fact that almost all federal government activities are funded through discretionary programs — you’d think Washington lawmakers would be closer to having a budget deal, right?

Government Programs and Discretionary Spending:

How Will the Fiscal Cliff Affect Govt Spending & Workers?

SOURCE: Data from the Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2012 to 2022, January 2012. Courtesy PGPF.

Unfortunately for the average American, Washington has been working at a snail’s pace to hammer out some sort of budget compromise. But let’s say the deadline comes and goes and we do go over the “fiscal cliff.”

What would that look like for government spending?

To give you a little perspective, here are four areas that would be affected by the spending cuts included in the “fiscal cliff”:

EDUCATION

(Getty Images)

In the event Congress takes no action and the automatic the 8.2 percent budget cuts to all federal discretionary spending programs kick in, the following education programs would take a hit [via the Washington Post]:

Title I (which targets money to low-income students), IDEA (the Individuals with Disabilities Education Act, which sends money to special education students), Title II (which provides money to improve teacher quality) and the Rural Education Achievement Program (which helps small, rural school districts).

DEFENSE

(Getty Images)

This one is obvious. When the cuts kick in, the defense part of the U.S. government will get a real kick in the head.

“Over the next decade, the $500 billion cuts to defense spending will be phased in, with a whopping $55 billion to take effect next year alone,” writes Diane Alter for Money Morning.

Unsurprisingly, many feel that drastic cuts to defense might endanger national security. Also, analysts believe that major cuts to defense will be felt well beyond 2013.

“With the U.S. fiscal deficit still an unsolved problem, we remain resolute in our belief that the big cuts in defense budgets have yet to be seen, and may start to show up in the 2014-2015 timeframe after a more turbulent than normal political environment in 2013. We do not expect a major impact from cuts in the defense industry until late in our 12- to 18-month outlook period,” Moody’s ratings agency noted.

ENERGY

(Getty Images)

Many tax credits and government-backed subsidies associated with renewable energy and fossil-fuels are scheduled to expire at the end of the year unless Congress votes to extend them.

“The production tax credit for wind energy is set to expire at year’s end unless Congress votes to extend it. The mandatory, across-the-board sequestration cuts set to go into effect on Jan. 2 would affect … the Environmental Protection Agency and the Energy and Interior departments. It’s unclear exactly which projects would face the chopping block,” writes Amy Harder for National Journal.

“Congressional Democrats are pushing to eliminate oil and gas subsides as part of any compromise. Meanwhile, some fossil-fuel industry and business groups are making the case that increased oil and natural-gas drilling can help solve the country’s fiscal crisis, too,” she adds.

As of this writing, however, neither Republicans nor Democrats have addressed how mandatory spending cuts will affect environmental and energy issues.

Everyone is focused on tax cuts.

HEALTHCARE

(Getty Images)

Here’s another area where very little attention has been paid. According to a few analysts, the proposed cuts would be felt all throughout the healthcare industry.

“The proposed 2% budget cut in health care is going to primarily affect health care providers, such as hospitals, nursing homes, and long-term care facilities. The government is a big payer to these providers, and a 2% cut will result in a price reduction to their reimbursement levels, which tends to fall directly to a company’s bottom line [operating profit] because these are very high fixed-cost businesses,” said Fidelity portfolio manager, health care, Eddie Yoon.

“In addition, there will be an 8% across-the-board budget cut to the National Institutes of Health (NIH), which impacts basic research funding that’s spent by academic labs and research institutions around our country,” he added.

Click here for Part I of our “Eye on the Fiscal Cliff” series

Follow Becket Adams (@BecketAdams) on Twitter

All photos courtesy Getty Images.

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Comments (27)

Scott15sb
Posted on December 13, 2012 at 10:51pm
We need to go over the cliff. Yes, it will hurt. It will hurt a lot, but we must hit bottom! That is what it will take to fix the economy and bring us back to freedom and capitalism. Remember, Capitalism is the only economic system that requires a free market and a free market requires free people.

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bhosux
Posted on December 12, 2012 at 8:15am
On which Friday will Boehner and the GOP cave in to the liberal Kings?

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RDMercer
Posted on December 11, 2012 at 8:56pm
If we could just get the criminal rats in Washington to go off the cliff this country might stand a chance. But I don’t see that happening any time soon.

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Ghandi was a Republican
Posted on December 11, 2012 at 4:38pm
Stares need to bring the power home. Challenge everything obama lays out until precedence cuts the progressives off at the knees. That is the game they want to play- Play ball! We have figured out the riles- No rules!

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- georgette
  Posted on December 11, 2012 at 4:55pm
  what about …
  –”black” budgets …….and “disappearing money” that no one seems to know what happened to….
  throw in HUD, Fannie Mae and Freddie Mac expenditures………..
  the current system seems to suit various administrations and Congresses just fine.
  
  disappearing money
  
  Report this comment
- turkey13
  Posted on December 11, 2012 at 7:42pm
  There won’t be any more dissappearing money. All off shore accounts have been filled. I read the other day that the Obamas were worth over a $ miillion 4 years ago and are now worth almost $ 16 million. This is the best paying job in the world.I also read that of the $897 billion TARP money there has been 600 convictions and 1900 pending on miss use of the funds. When you put 897 billion on the table there will always be some that can’t control their greed.
  
  Report this comment
Bodacious_Boedi
Posted on December 11, 2012 at 4:21pm
I hate everything about Washington…..Dear Leader……both parties….I’m a Libertarian and I’m on VA disability.

It’s well earned VA disability I might add incurred from that Great Unpleasantness in Southeast Asia a couple decades back. I rely on every dollar from that as well as food stamps.

If this whole show goes over the cliff and I find a chain attached to my ankle, well….I’ve nowhere to go except over the cliff and I’m way to old to be homeless.

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- soybomb315_II
  Posted on December 11, 2012 at 4:49pm
  kids?
  
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nonofmybiznez
Posted on December 11, 2012 at 4:04pm
It seems to me the only ones to benefit from the tax hikes will be big business. They have deeper pockets and the ability to get lawyers and tax experts to help them outlast their competition. The competition is small business. The lifeblood of our nation. Big business seems to be in working with Obama to do away with the little guy small business. Then big business can become part of the government or taken over by the government and have no competition. If the government takes over all business, you will work for the government. They will take away everything individual including your guns and personal property. You will be the government’s slave.

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- GhostOfJefferson
  Posted on December 11, 2012 at 4:06pm
  Nobody’s taking our guns. That would mean that they’d face an armed force that outnumbers them, military and police combined, by about 80 to 1. Ain’t happening.
  
  Report this comment
- soybomb315_II
  Posted on December 11, 2012 at 4:15pm
  they will eliminate the supply of bullets before they take guns
  
  Report this comment
- Rothbardian_in_the_Cleve
  Posted on December 11, 2012 at 4:41pm
  Personal property? Probably not. Assets? Absolutely. It will be hilarious to see people willingly giving over 401K balances for government bonds because it is the patriotic thing to do. Freakin’ sheep.
  
  Report this comment
- Ghandi was a Republican
  Posted on December 11, 2012 at 4:46pm
  That’s the point. Kill off the little guys and all you have to do is take down the guy that’s left. That’s what they did with the banks. Called them too big to fail, then wrote legislation that killed 4,000 community banks around the Country. It’s a temporary alliance where the players don’t really care what happens after they are filthy rich. Let the Government take the Company, Who cares “I already got mine and I’m outta here” – Later on, the elites are already predisposed to the necessary attitude when they ascend to the politburo..
  
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Rothbardian_in_the_Cleve
Posted on December 11, 2012 at 3:58pm
Was this article supposed to make me feel sympathy in any way for the government and/or those taking from the government? If so, that would be a “fail”.

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- GhostOfJefferson
  Posted on December 11, 2012 at 4:06pm
  Right on. I’m all for these cuts. I say, go deeper, and make them *real* cuts. I suspect that even if these “cuts” occur, we’ll still spend more next year than this year. Cuts in the rise in spending I’ll bet.
  
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- soybomb315_II
  Posted on December 11, 2012 at 5:00pm
  man – how can this economy possibly survive without this critical money to the federal departments…..
  
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fgarvin
Posted on December 11, 2012 at 3:55pm
OVER THE CLIFF ! OVER THE CLIFF ! The fast way to effect change in America is to throw this country into turmoil. Those of us not dependent on the government will do well and have plenty of opportunity to get rid of the leeches. Remember when Romania got rid of its Tyrant, they hung both the tyrant and his wife by a heliocopter and flew around the capital until their heads finally came off…..AWESOME!

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Brooke Lorren
Posted on December 11, 2012 at 3:43pm
Perhaps they should make a 2% cut to the amount that all EBT cash, food stamp, subsidized housing, WIC, unemployment, and other entitlement recipients receive as well. That would probably save a great deal of money… I do know that there are some hurting people that need that money, but a 2% cut would not hurt too much.

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- GhostOfJefferson
  Posted on December 11, 2012 at 4:00pm
  Isn’t it odd that the military, which is actually Constitutional, is “discretionary spending”, but socialist unconstitutional programs (most of them, not all) are “non-discretionary” and you’re somehow not allowed to cut them. You’d think that somehow, there was an idea to topple the Republic began 100-ish years ago or so.
  
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soybomb315_II
Posted on December 11, 2012 at 3:36pm
So spending on dept of education, energy, and national healthcare will be reduced in exchange for cuts to military….Sounds like a good deal

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Cavallo
Posted on December 11, 2012 at 3:30pm
Slice and Dice!

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CWPrequired
Posted on December 11, 2012 at 3:22pm
Let the cuts begin.

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- oldguy49
  Posted on December 11, 2012 at 3:27pm
  yea baby…..!!!!
  
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- Snowleopard {gallery of cat folks}
  Posted on December 11, 2012 at 3:36pm
  Amen, and the blame is solely on Obama for his madness over irresponsible spending.
  
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- GhostOfJefferson
  Posted on December 11, 2012 at 3:43pm
  Blame?
  
  This would be great if it happened! (the cuts I mean, not the bogus taxes).
  
  And I’ll up the ante, go after “non-discretionary” spending as well. Slash the welfare and warfare state until it’s an anemic corpse that you can toss into a shallow grave.
  
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- soybomb315_II
  Posted on December 11, 2012 at 3:44pm
  watch out – obama might get blamed for balancing the budget with these cuts
  
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- Rothbardian_in_the_Cleve
  Posted on December 11, 2012 at 4:39pm
  @Soy,
  
  Ha! Like balancing the budget is even possible. Well, let me restate that. Like balancing the budget under an income tax model is even possible. Cuts. Ha!
  
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