Agencies get two-month reprieve on sequestration

At 10:57 p.m. on New Years Day -- nearly 23 hours after the government technically went over the "fiscal cliff" -- the House of Representatives voted 257-167 to postpone sequestration and avert income tax hikes for all but the highest-paid Americans.

The vote, which sent to President Obama a bill passed by the Senate in the early hours of Jan. 1, provides agencies with a two-month reprieve from the across-the-board cuts required under the Budget Control Act. According to a fact sheet released by the White House, that postponement is being offset by $12 billion in new tax revenue, and $12 billion in "spending cuts which are divided equally between defense and nondefense."

The main focus of the agreement, however, was to reinstate tax cuts that expired at the end of 2012. Income tax rates will now climb only for taxpayers with incomes greater than $400,000 for individuals or $450,000 for families, and the bill includes a permanent fix for the Alternative Minimum Tax. Yet federal employees -- like all U.S. wage earners -- will see an immediate decrease in their paychecks, as the payroll tax holiday that had been in place since 2009 was not extended. This means workers will pay an additional 2 percent on wages up to $110,100 -- a hit of $2,202 for those earning into six figures, or $1,000 for a typical U.S. family earning $50,000 a year.

Obama, speaking from the White House a few minutes after the bill passed, confirmed that he would immediately sign it into law. "I think we all recognize that this law is just one step," the president said, alluding to the budget decisions that were deferred in order to get a deal before the 112th Congress concluded. "We're going to have a lot of work to do in 2013."

The president did not directly mention sequestration or its impact on agencies, and the legislation does not specify where the $12 billion in discretionary cuts are to be made. He did, however, state that "we can't simply cut our way to prosperity.... The deficit needs to be reduced in a way that's balanced."

House Speaker John Boehner (R-Ohio), who ceded fiscal cliff negotiations to Obama and the Senate shortly before Christmas, said after the House vote that his Republican caucus will "hold the president accountable for the 'balanced' approach he promised, meaning significant spending cuts and reforms to the entitlement programs that are driving our country deeper and deeper into debt."

William R. Dougan, president of the National Federation of Federal Employees, called the Jan. 1 deal a bad one for feds. "The most important federal workforce issue of our generation -- sequestration -- continues to hang over the head of federal employees throughout government," Dougan said. "Furthermore, the failure to address the nation's borrowing limit will likely lead to another prolonged political standoff, leaving federal workers uncertain of whether they will have a job to come back to for a third time in two years."

American Federation of Government Employees National President J. David Cox Sr., meanwhile, said his members "are very concerned about the use of additional agency funding cuts in order to pay for the delay of the sequester."

"How agencies will achieve these amounts is not clear in the language of the bill," Cox noted. "Before they look any further at unpaid furloughs or other cuts to critical agency programs, OMB should sharply reduce the amount taxpayers provide to federal contractors for excessive salaries for their top executives."

The stopgap agreement means Congress now has until March 1 to avert the cuts of 8-10 percent that sequestration would impose on most agencies. Defense Secretary Leon Panetta had warned that such cuts could force furloughs for up to 800,000 civilian DOD employees, and non-defense agencies have made similarly dire projections.

It also means that 2012's long run-up to the "fiscal cliff" is now replaced with a series of critical budgetary deadlines in early 2013. In addition of the March 1 sequestration threat, the federal government hit its borrowing limit on Dec. 31, and will face another shutdown if the debt ceiling is not raised by late February. (Obama, in his Jan. 1 remarks, vowed again not to negotiate over the debt limit, saying Congress has an obligation to pay for spending it previously legislated.) And the continuing resolution that currently funds agencies expires on March 27 -- leaving little time for Congress to appropriate money for the remainder of Fiscal 2013.

Sen. Tom Carper (D-Del.), who will be the new chairman of the Senate Homeland Security and Governmental Affairs Committee, and who voted against the deal because he felt it was an inadequate stopgap, released a statement calling for renewed commitment to a grand bargain: "My hope is that... the next time there's a serious effort to put together a budget deal, both sides will stay at the table and seize the opportunity to make the hard choices we know have to be made."