Fiscal Cliff Deal Reached, Sequestration Pushed Back 60 Days

Yesterday Congress passed a bill averting the so-called 'fiscal cliff' on New Year's Day. Although Congress was able to come to an agreement on some items, many critical budget items were not able to be agreed upon in time.

The American Taxpayer Relief Act of 2012 keeps the decade-long lower tax rates for individuals earning less that $400,000 (or joint-filers earning under $450,000 together), as well as extending business and energy tax breaks and a one-year unemployment-benefit extension. Things not addressed include federal agencies running out of funding on March 27, the federal borrowing limit of $16.3 trillion being reached, and the threat of sequestration being pushed back until March 1.

This last item is the one most troubling to the Department of Defense. While sequestration would have been difficult if it was enacted on Jan. 2, pushing it back until March would give the DoD only 6 months to make the same $57-$63 billion in cuts. This reduced amount of time to pare down programs by 9.4% would result in more haphazard cuts, which could further increase the impact of cuts.

All this means that the drama over the 'fiscal cliff' is far from over, and the next debates, over borrowing limits and federal funding, are also likely to go to the wire again.