Folks – You have heard a lot over the past days and months about the “fiscal cliff” and tax rates. But in fact, there was actually no final resolution to the sequester portion (i.e. across the board agency cuts) until 24 hours ago – the one component that affects our contract funding. Here is my quick analysis of how QNA is affected by legislation passing tonight in the House…
The final bill delays sequestration for 2 months. It is truly a 60-day solution. The revenue impact of kicking the can to March 1 is $24B. That specific cost will be offset in the legislation in two ways (1) $12 billion raised by cutting current year overall spending by $4 billion and cutting $8 billion in FY14; and (2) $12 billion of new immediate revenue by allowing individuals to roll 401(k) assets into a Roth IRA, which would require an initial payment of tax liability on previously untaxed income (Tom Bailey, good luck!).
***PLEASE understand that while Congress congratulates itself for extending tax breaks and delaying program cuts, the next 3 months will be extremely messy and will directly affect customer decision-making on tasks, new and major contracts. Why?
- The deal offers no spending cuts after February. The 10% full sequester automatically kicks-in again on March 1.
- Impending “parliamentary” House votes necessary to further extend the nation’s debt limit in February (which allows for continued deficit spending for government, including entitlements) will be on “hold” in the House to allow Republicans to bargain for longer-term entitlement spending cuts they seek from the President.
- House Republicans will pursue a debt-limit extension strategy that allows for more government borrowing only when combined with additional equal cuts to government-wide spending (specifically entitlements).
- The Continuing Resolution (CR), under which the government currently operates, expires at the end of March.
- Non-action by the House on any of these issues immediately translates into a major government shutdown.
- The combination of these factors and a new Senate that becomes more Democrat in 2013 (with a Republican-led House) creates the type of climate that we enjoyed during the 1990’s government shutdown. Except there will be fewer moderates from both parties pushing for compromise.