With the deadline only hours away, the so-called super committee, tasked with finding at least $1.2 trillion in budget savings by this summer's debt ceiling deal, is hopelessly deadlocked. Its failure will trigger across-the-board budget cuts in defense spending and social programs that will go into effect in the start of 2013. The failure, while not entirely surprising, will also send shock waves through the legislative process, affecting nearly all of the bills Congress will consider for the rest of its session.
No one knows exactly how it will all play out. Many expect Congress to change or undo the automatic budget cuts—called "sequestrations" in Washington lingo—but the fight over how to do that will likely be a difficult, complicated, and long battle. Here are some ways that it could affect Americans across the spectrum.
The payroll tax cut, enacted as part of the tax cut compromise in late 2010, is set to expire at the end of the year, and is worth $934 per year for the average worker, according to the left-leaning Center for Budget and Policy Priorities. Originally, many in Congress thought the super committee might be a way to get an extension passed. While Republicans have been cool to the idea of extending the tax cut, they admitted that they might be willing to look at it as part of a larger compromise. But now that the compromise is dead, it's not clear whether extending the cut has a prayer in Congress. Democrats will still aim to pass it, but are debating strategy and likely won't decide until after the Thanksgiving recess. The same is true for extending long-term unemployment insurance, something Congress has done since the beginning of the recession, but which is also in doubt this year.
There's another, more indirect, way that the super committee's failure could affect an average person's taxes. If the triggers go into effect, federal funds will dry up for many state-run programs, forcing states to decide whether, and how, they'll be able to make up the difference. It could lead to higher sales or income taxes in the states.
Social Security and Medicaid are exempt from the super committee's budget triggers, but Medicare is one of the targets. While Medicare recipients wouldn't be directly affected, Medicare providers could be hit with a 2 percent cut, possibly forcing some doctors or hospitals to reconsider whether to accept Medicare patients at all. The effect could be modest but noticeable according to senior groups. "Any time you ratchet down payments to providers, there is going to be somewhat of an impact on the healthcare that's being provided, unless they can find alternative ways to save money," says David Certner, a spokesman for AARP. "It's just a little bit hard to know what the actual impact will be."
While most entitlement programs are exempt from the sequester, there will likely be across-the-board cuts in most non-defense federal programs. Richard Kogan, a budget expert with the CBPP, estimates that most agencies will see their budgets slashed by as much as 9.3 percent in 2013, in addition to cuts the agencies have already made this year. How these cuts will take form won't be clear until the budgets are drawn up, but it could mean government services across a wide spectrum of sectors will suffer. For instance, wait times for tax rebates and passports could increase. While Social Security payments themselves are exempt, the Social Security Administration will be hit, also lengthening the process for recipients. Federal job training programs and Head Start will also see their funding slashed, which means fewer people will be able to take advantage of those services.
At least in the short term, there are some reasons why Americans might be better off due to the super committee's failure. Congress won't end up implementing the gradual Social Security payment slashes or tax hikes it was considering, or many other tax credits and deductions that likely were in the mix, such as the exemption for mortgage interest or for employer healthcare costs. But sooner or later, Congress is going to have to make tough decisions about the deficit, and likely take a closer look at those options.
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