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Washington Braces for Fiscal Cliff Impact

December 28, 2012—President Obama was scheduled to meet with congressional leaders Dec. 28 in a last ditch effort to avert the combination of expiring tax cuts and pending across-the-board cuts that make up the so-called “fiscal cliff.” 

Given the Dec. 31 deadline for the expiring tax rates, and the Jan. 2 start of sequestration, most observers believe the likely outcome will be a limited, short-term agreement that temporarily extends the tax cuts for some but not all Americans. The fate of the sequestration and other expiring provisions such as extended unemployment benefits and the payroll tax “holiday” is unclear.   Such an agreement also would not likely address the expiration of the sustainable growth rate (SGR) “patch” to avert a 26.5 percent cut in Medicare physician fees come Jan. 1. 

In remarks on Dec. 21, President Obama called on Congress “to work towards a package that prevents a tax hike on middle-class Americans, protects unemployment insurance for 2 million Americans, and lays the groundwork for further work on both growth and deficit reduction. That's an achievable goal.”

House GOP leaders, including Speaker John Boehner (R-Ohio), Dec. 26 issued a joint statement noting, "The House has acted on two bills which collectively would avert the entire fiscal cliff if enacted…. The House will take … action on whatever the Senate can pass, but the Senate first must act."

In a Dec. 27 floor speech, Senate Majority Leader Harry Reid (D-Nevada) threw the blame back on House Republicans, saying, “The bill that has passed the Senate protects 98 percent of families and 97 percent of small businesses. They passed a bill in the House, that we defeated, that extends the tax cuts for everybody. That was voted down over here. The President said he would veto it…. [T]he Republican House leadership said yesterday: Let them take our bill. That bill was brought up and it was defeated.”

Meanwhile, federal agencies began to address the potential impact of sequester in internal memos issued Dec. 20.  The memos, which according to various sources are based on guidance issued by the Office of Management Budget, clarify that if sequestration occurs, it will reduce the agencies’ budgetary resources for the remainder of the fiscal year (which runs through Sept. 30, 2013).  The memos state, “These cuts, while significant and harmful to our collective mission as an agency, would not necessarily require immediate reductions in spending.  Under sequestration, we would still have funds available after January 2, but our overall funding for the remainder of the year would be reduced.  Accordingly, this situation is different from other scenarios we have encountered in recent years, such as threats of government shutdown due to a lapse in appropriations.”  OMB is not expected to issue specific guidance until after Jan. 2.

The Senate returned to Washington Dec. 27.  The House is scheduled for a rare Sunday session Dec. 30, with Majority Leader Eric Cantor (R-Va.) telling Republicans the House may be in session through Jan. 2, the day before the start of the 113th Congress.


Dave Moore
Senior Director, Government Relations
Telephone: 202-828-0559


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Jason Kleinman
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Telephone: 202-903-0806