Defense in the Newest Deal

The text of the New Year’s deal averting the fiscal cliff is up.  Almost all of it relates to taxes.  Only 1 section (section 901) of 3 pages deals with discretionary spending in the entire 153 page bill.  As reported, the deal delays sequester for two months—from January 2^nd to March 1^st, at the expense of $12B of discretionary cuts.¹

But that $12B doesn’t happen all at once.  Only $4B comes in FY13—evenly divided between security and non-security, categories created in last year’s BCA deal.² And the enforcement of those reduced caps won’t happen until March 27^th, when the current CR expires, meaning Congress had to reach a new agreement on appropriations levels anyway. 

The other $8B is cut from FY14. In the BCA, there was just a single cap for all discretionary spending.  The new deal divides the cap between the traditional defense and non-defense, with each paying half of the $8B.  As long as Congress gets the next deal, FY13 will be divided between security and non-security, but FY14 will be between defense and non-defense.³

So defense—and all other discretionary spending—is saved for at least two months, with a penalty of only four-tenths of a percent ($4B savings out of a $1,047B topline)--provided the next deal doesn't change the toplines. 

Guess it’s a case of surviving to fight another day.

¹ Another $12B in deficit savings came from increased taxes on transferring traditional IRAs to Roth IRAs. 

² Security is DoD, NNSA, DHS, VA, international affairs, and some small intelligence funding; non-security being everything else.  If sequester goes into effect, the split reverts to defense and non-defense including the same $2B less from each side. 

update: CBO notes that though the bill reduces the non-defense discretionary cap by $2B, that category is already at $356B, under all the caps.

³ Defense is not just DoD, but all of the budget function National Defense, which includes Department of Energy funding for nuclear weapons and other defense-related funding.  Non-defense is everything else.

update 1/4/2013: the bill text referenced in the original post was revised to fix a numbering error making the relevant section 901 instead of 1001. Link and reference corrected.