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Inching Towards the Edge of the Cliff?

Early in December, it appeared President Barack Obama and House Speaker John Boehner (R-Ohio) were near a deal to avert the “fiscal cliff.” However, negotiations broke down before Christmas leaving the country in limbo as to whether Washington will reach a deal to avoid year-end tax increases and spending cuts.

When Boehner was rebuffed by his Republican caucus after proposing to extend Bush-era tax levels for those earning less than $1 million per year, Americans were left to wonder if a deal could be reached as the House left Washington without any clear plan to return. Clearly frustrated, Boehner punted to President Obama and Senate Majority Leader Harry Reid (D-Nev.), saying, “Now it is up to the president to work with Sen. Reid on legislation to avert the fiscal cliff.”

Reid has said that the earliest the Senate will deal with the fiscal cliff would be on Dec. 27, after senators return from the holiday. This tight deadline, gives lawmakers just days to work out an acceptable compromise that will attract enough votes to win passage in both chambers. Upon his return to Washington, however, Reid expressed doubt that a deal could be struck.

The scale of the challenge remains enormous. Here’s a snapshot of the issues that are combining to create the fiscal cliff (the numbers in parentheses are the estimated costs of maintaining current law for one year and for ten years):

 

  • Expiration of the 2001 and 2003 tax cuts ($108 billion/$2.74 trillion)
  • Across-the-board budget “sequester” ($97 billion/$1.2 trillion)
  • Steep reduction in Medicare physician payments (the so-called “doc fix”) ($10 billion/$45 billion)
  • Expiration of Alternative Minimum Tax patches ($103 billion/$864 billion)
  • Expiration of payroll tax cut and extended unemployment insurance ($89 billion/$114 billion)

 

The total cost of extending current law in all of these areas for just one year is $491 billion. The ten-year cost is $6.1 trillion (more than a third of the value of the entire national debt).

The cost of failure is particularly high for the aviation sector. If the automatic, across-the-board cuts to most federal programs take place, the Office of Management & Budget (OMB) reported that the FAA will have its $15.9 billion budget reduced by $1.04 billion annually.

The OMB report shows that the FAA’s operations account will lose $792 million. As the FAA already faces challenges in operational funding, the cuts could impact many areas, including inspections and certification programs. Other FAA accounts will also see reductions, including $229 million to the facilities and equipment budget and $14 million in funds dedicated to research, engineering, and development.

This is on top of other, indirect consequences. A study commissioned by the Aerospace Industries Association demonstrates the economic consequences of the automatic spending cuts. Lost output by the aviation industry is estimated between $9.2 billion and $18.4 billion, leading to approximately 132,000 jobs lost. Furthermore, should the cuts delay implementation of NextGen, roughly $40 billion and 700,000 jobs could be lost by 2021 due to an overworked, outdated, and inefficient air transportation control system. Those figures increase to $80 billion and 1.3 million jobs by 2035.

The total impact of going over the fiscal cliff is even greater. In addition to the potential impact from budget cuts, increased taxes and massive tax uncertainty will discourage business growth and development.

To weigh-in to urge lawmakers to resolve the fiscal cliff, visit: ARSAAction.org.

 



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