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 2nd to March 1st, 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 27th, 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.