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Legislative Update: Congress Reaches Fiscal Cliff Deal But Threats Loom

After weeks of negotiations between the White House and congressional Republicans, the U.S. House of Representatives approved a Senate-passed bill that averts major tax hikes for the middle class and temporarily avoids across-the-board spending cuts. The American Taxpayer Relief Act of 2012 (H.R.8) passed in the House last night by a vote of 257 to 167. The bill will prevent income tax hikes for 99 percent of Americans and will delay sequestration cuts for federal programs until March 1st. The legislation will now go to President Barack Obama to be signed.

Despite the imminent passage of the bill, the 113th Congress will immediately face many divisive issues when they convene for the first time on Thursday.  In February, the nation is once again expected to hit its debt ceiling, which coincides with expiration of FY 2013 funding. Also, the two-month delay of sequestration approved in this bill means that Congress will need to take action by the March 1st deadline to avoid deep cuts to federal agencies and programs.

The American Taxpayer Relief Act:

  • Tax cuts are maintained for individuals earning less than $400,000 per year and couples earning less than $450,000. Income tax rates will rise from the current 35 percent to 39.6 percent for those making more.
  • Unemployment insurance will be extended for a year for 2 million long-term unemployed Americans.
  • Bill extends for five years the American Opportunity Credit to help families pay for college expenses.
  • The bill delays sequestration for two months (see below for more information), and reduces the amount of overall cuts by $24 billion over nine years.
    • The bill reduces the total amount of the sequester over 9 years by $24 billion, bringing down the total from $1.2 trillion to $1.176 trillion. If the sequester takes place in fiscal year 2013, the total cuts would be $85.33 billion rather than the original $109 billion.

What does this mean for Career Technical Education (CTE)?

Since the passage of the American Taxpayer Relief Act will delay – not remove – the threat of sequestration, Perkins funding and other education funding are still threatened by considerable cuts. Sequestration cuts would be applied across-the-board and impact nearly every domestic program. The cuts will be less than the 8.2 percent originally projected by the White House’s Office of Management and Budget. However, the cuts would come with only seven months of spending left in the fiscal year rather than nine months; thus, the proportionate impact would still be considerable.

Since education programs are funded in advance and dollars have not yet been spent, the final percent for cuts would be taken from funding for the entire year rather than from a 7-month period as described above. CTE programs receive federal funding in July and October so, should sequestration occur, the impact on CTE programs would not be felt until the 2013-2014 school year.

Kara Herbertson, Research and Policy Manager

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