StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

CR Deal Does Not Eliminate The Fiscal Cliff Or The Sequester

02 Aug 2012
Posted by Stan Collender

There seems to be some confusion both inside and outside the beltway about the impact of the deal on a six-month continuing resolution that kind of/sort of was announced yesterday in separate statements by House Speaker John Boehner (R-OH) and Senate Majority Leader Harry Reid (D-NV).

The bottom line: Appropriations were never a formal part of the fiscal cliff so a deal on a CR is a separate issue that doesn't affect it.

To be technical...Something had to be done by October 1 -- the start of fiscal 2013 -- to avoid a government shutdown; the fiscal cliff as it was used by Fed Chairman Ben Bernanke primarily referred to the tax cuts that expire on December 31 and the sequester that will cut spending by $120 billion on January 2. The CR and cliff are related only in the sense that they both deal with the budget and so are often discussed at the same time, but the two are and always have been completely different.

One reason for the confusion is that many analysts -- myself included -- usually assumed that the first CR for fiscal 2013 would only fund the government until December 31 and, therefore, be yet another decision that had to be dealt with at the same time the fiscal cliff policies were expiring or triggered. That all changed, however, when the CR was for six months. That took appropriations and a possible government shutdown out of the fiscal cliff equation.

So the answer to the question I was asked most often yesterday -- Does the CR deal mean that sequestration won't happen? -- is a resounding "no." The sequester is a separate issue and the only way it won't happen is if Congress and the White House agree to legislation stopping, delaying, or modifying it.

Two more key points.

First, the CR could include language that stops, delays, or modifies the sequester and, therefore, be the legislative vehicle for stopping the fiscal cliff from going into effect. However, Boehner and Reid both said yesterday that the CR will be free from extraneous policy changes so that may be less likely than some were saying, or wanted to believe. I have no doubt that there will be an attempt to do add that fiscal cliff-cancelling language in the House and Senate, but there's no guarantee that will succeed.

Second, as I mentioned in my post yesterday and Andrew Sullivan talked about over at The Daily Beast, the CR could make it easier for Congress and the White House to agree to separate legislation that prevents the fiscal cliff from happening or delays the cliff until several months into 2013. That's far different, however, from saying that the CR has already prevented the cliff from happening. Not only has the CR not been enacted yet so nothing has changed except the rhetoric about a government shutdown during the August recess, but even if it is enacted all the tax cuts will still expire on December 31 and the sequester will take place as scheduled on January 2.

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