Key terms about federal funding and the Fiscal Cliff are provided below in three sections:

• Current Debate Terms – fiscal cliff, sequester, grand bargain, Bush-era tax cuts
• Types of Federal Spending – discretionary, mandatory/entitlement, tax spending/expenditure
• Other Important Budget Terms – appropriations, continuing resolution, debt limit/ceiling, fiscal year

• Fiscal Cliff  means that in January 2013, both the automatic cuts to domestic and defense programs would take place and all of the 2001 and 2003 Bush-era tax cuts would change back to prior levels.

• Grand Bargain means the negotiations simultaneously dealing with the automatic cuts (sequestration), the extension or termination of all or some of the 2001 and 2003 tax cuts, and changes to Medicare, Medicaid and Social Security into one big budget deal.

• Sequester/Sequestration simply means cutting program funding. As part of the 2011 Budget Control Act, Congress and the President agreed to deal with deficit reduction by making cuts of $1.2 Trillion over the next decade to domestic discretionary (see definition below) and defense spending.  In the first year – starting January 2013 – these cuts would affect all of those programs equally.  This means that unless sequestration is stopped before December 31, there will be cuts of 8% to Head Start, child care, early intervention, federal K-12 programs, WIC and many other human services starting on January 2, 2013. The sequester does not apply to certain entitlement programs such as Social Security, child care food program, and Medicaid. 

• Bush-era tax cuts refers to changes to the tax code made in 2001 and 2003 during the term of President George W. Bush.  These cuts, passed by Congress, provided both wealthier taxpayers as well as middle income taxpayers with reductions in taxes through expanded or new tax credits and deductions.  According to the Center on Budget & Policy Priorities, the 2001 and 2003 tax cuts added about $1.7 trillion to deficits between 2001 and 2008 through lost revenue.

• Discretionary spending is the funding on a program-by-program basis that is determined first by Appropriations Committees, then Congress as a whole, and finally the President by his signature or veto of appropriations bills. Discretionary spending is what the term itself means – it is not a required amount of funds; the amount of funds provided do not have to match the need for a service or benefit of a federal program. Examples of discretionary spending programs are Head Start, Child Care & Development Block Grant (also known as the Child Care Development Fund), Early Intervention Part C, Title I and other programs in the Elementary & Secondary Education Act, and the WIC nutrition program.

• Mandatory spending is a guaranteed amount of spending. Entitlement spending is a form of mandatory spending where the funding levels are supposed to match the eligibility for services or benefits, such as Social Security, Medicaid, Child Care & Adult Food Program, and Food Stamps/SNAP. For example, the Child Care & Development Block Grant to states is partially discretionary spending and partially mandatory spending.    

• Tax spending/tax expenditures are tax credits, deductions and exemptions (examples: child tax credit, home mortgage deduction). These are treated as spending or expenditures just like discretionary and mandatory funding. The credits, deductions and exemptions give back to the tax filer funds because they were eligible for a credit or deduction (have a home mortgage; have a child under age 18 for example). This is in essence a return of funds by the U.S. Treasury to be spent on the individual tax filer.

• Appropriations is the process of deciding discretionary funding. Each year, the different appropriations committees – each is responsible for certain federal agencies – must pass their bills to set forth the spending for the next federal fiscal year. They set the funding levels for the next fiscal year for each program, including Head Start, early intervention, child care, Title I and other K-12 programs, WIC and other human services programs. Appropriations bills must be signed by the President to become law.

• Continuing Resolution is what Congress passes if the President does not sign an appropriations bill by midnight September 30. A Continuing Resolution keeps current spending levels going to states and localities and other recipients until the President signs the bill (which may contain increases, freezes or cuts compared to the previous fiscal year). 

• Debt Limit/Ceiling is the amount that the federal government can borrow to meet its current legal obligations. This includes spending on entitlements, interest on the debt, tax refunds, among others. It does not authorize new spending but ensures that the government can meet its obligations. Failing to increase the debt limit would have national and international economic repercussions. The debt limit has been acted on 78 times since 1960.

• Fiscal year for the federal government is October 1 through September 30. (We are currently in fiscal year 2013, which began October 1, 2012.) 

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