Countdown to the Fiscal Cliff

The world continues to watch as Congress and the White House play out the theatrics of exchanging offers to avoid the “fiscal cliff,” then publicly rejecting them.  Meanwhile off stage, President Obama, House Speaker John Boehner, and their senior staff carry on private conversations and continue to seek common ground.  If an agreement is not reached by the end of the year, taxes will go up, government spending will be deeply cut, and global markets could react negatively, causing what some fear could be the first pre-meditated recession in American history.

What’s at stake for higher education?  Expiration of many significant higher education tax benefits (see earlier Washington Update story).  Also, cuts to student aid funding; and cuts to research funding are all at risk if no deal is made.  Students would still receive Pell Grants and student loans, but all other student aid would be cut by eight percent, and loans would cost more.

So far, in the fiscal-cliff negotiations, the main focus has been on taxes. President Obama has stated many times publicly that there will be no deal without increased taxes on the wealthy – defined as individuals earning over $200,000 annually or married/joint filers earning more than $250,000 annually. Currently, the administration isn't willing to budge on this point, and the House is likewise unwilling to budge on its opposition to the income caps.  House and Senate Republicans are open to looking at increased tax revenues as part of a deal, but not by placing income caps on current tax breaks.  Both President Obama and House Republicans have submitted proposals to each other that have been flatly rejected.

There also has been consideration of limiting the largest tax deductions as a way to increase federal revenues.  Most of this discussion has come from policy shops, think tanks, and the press - and not from the White House or Congress.  Still these possibilities have many in the nonprofit community concerned about the charitable deduction.  NAICU joined other higher education associations in sending letters to the White House, House, and Senate, reiterating support for the deduction, and raising concerns about caps or limits that would severely restrict the benefit, negatively affecting alumni giving.

NAICU President David Warren was part of a delegation of nonprofit leaders who met with top administration officials on the charitable deduction last week, during a series of Washington events in support of charitable giving. While the administration had earlier proposed capping the charitable deduction at 28 percent, White House staff now seem to view such a proposal as less likely to be part of a fiscal-cliff fix.  House and Senate leaders also seem to feel that modifying the large tax deductions - such those for home mortgage interest or charitable giving - would be better undertaken as part of a major tax-reform effort down the road.

If no agreement can be reached by year end, the outlook for 2013 is extremely uncertain.  With no deadline looming to force lawmakers into making difficult decisions, they will have to find a new framework for extending the tax breaks or undertaking tax reform.  And they would need to do it while at the same time addressing deficit reduction and priority budgeting.

For details on fiscal-cliff developments beyond those reported in mainstream media, check the website for Politico, a free D.C.-based political newspaper.

For more information:  Karin Johns, karin@naicu.edu, tax policy; Stephanie Giesecke, stephanie@naicu.edu, appropriations