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Fiscal cliff deal averts across-the-board spending cuts

Deal Delays Across-the-Board Cuts
January 2, 2013

WASHINGTON — In a last-minute vote Tuesday night, Congress averted the deep, automatic spending cuts set to affect a wide range of federal programs, including many important to higher education. The vote to avoid the tax hikes and spending cuts, known together as the "fiscal cliff," gives lawmakers two months to cut $6 billion from the federal budget and sets up a probable spending showdown later in the year.

The bill averts tax hikes for all but the wealthiest Americans as the Bush-era tax cuts expire. It also puts off sequestration, the across-the-board spending cuts originally scheduled to take place because Congress did not reach a long-term agreement on deficit reduction in 2012. Many programs important to higher education, including federal work-study, the Supplemental Educational Opportunity Grant and funding for scientific research, would have been cut 8.2 percent under sequestration.

The Senate passed the plan, a compromise between the White House and Senate minority leader Mitch McConnell, on Tuesday morning by a vote of 89-8. The House voted 257-167 late on Tuesday night, the conclusion of a long day of uncertainty and false starts on the Hill after many Republicans announced their opposition to the compromise.

The deal on taxes would increase tax rates from 35 percent to 39.6 percent for individuals earning at least $400,000 and couples earning at least $450,000. Those increases reflect a pledge by President Obama (even if adjusted during negotiations) that new revenue had to be part of the equation for solving budget problems, in part so that deep cuts to vital spending programs could be minimized.

The deal also extends the American Opportunity Tax Credit, a partially refundable $2,500 tax credit for college tuition, for five years. The credit was initially part of the 2009 stimulus bill, and Obama promised during the campaign that he would make the tax credit permanent. In an e-mail to Inside Higher Ed on Tuesday, Terry Hartle, senior vice president for government and public affairs at the American Council on Education, called the extension "particularly welcome news."

The bill also made permanent other tax provisions with implications for higher education, including the student loan interest deduction and tax preferences for Coverdell savings accounts.

On spending cuts, many questions remain unanswered. Congress will need to reach an agreement March 1 to cut $6 billion from the budget. Whether those budget cuts will affect programs important to higher education is still unclear.

"We're glad the sequester will at least be postponed, but it needs to be repealed entirely and we hope that will be accomplished in the next two months," Barry Toiv, vice president for public affairs at the American Association of Universities, wrote in an e-mail. The AAU is among the groups representing research universities that have been speaking out about the damaging impact that a sequester could have on American science.

And the March 1 deadline will arrive at roughly the same time as another vote to increase the federal borrowing limit, and when a temporary law funding the federal government expires. Since the Republicans who hold the majority in the House of Representatives remain staunchly opposed to increasing federal spending, another showdown on Capitol Hill before those deadlines arrive is all but guaranteed.

While the Pell Grant program is protected from the sequester, previous agreements to avoid a government shutdown or a default on the federal debt have hit higher education programs hard. 

"The good news is that the automatic reductions have been avoided and this is a welcome development for scientific research conducted at universities," Hartle said. "The bad news is that the uncertainty surrounding the proposed reductions remains and, if you look hard enough, you can see another fiscal cliff in the not-too-distant future."

 

 

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