Deficit Reduction Has Implications for Goodwill

As a result of the deficit reduction deal made by Congress last year, the FY 2013 budgets for defense and non-defense defense discretionary spending are scheduled to be automatically reduced by approximately $813 billion on January 2, 2013 ($492 billion from the defense discretionary budget and $322 billion from the non-defense discretionary budget).

While neither party wants to see these reductions, Democrats and Republicans disagree sharply about how to prevent them, and are hoping that the outcome of this year’s elections will provide the additional leverage they need to implement their particular approaches. As a result, the work to solve these important issues is unlikely to begin in earnest until after the November election (yet before the next Congress convenes after the January 2 deadline), in a “lame duck” session.

The administration’s budget request, released last week, outlines a plan that proposes to avoid the automatic spending cuts required by the Budget Control Act that Congress passed last year.

Under the proposal, the automatic cuts – some of which would affect federal investments that support local Goodwill agencies’ efforts to help people find jobs and advance in careers – would be avoided by cutting mandatory spending, and increasing tax revenue.

Tax revenue would be increased by allowing certain tax breaks for high earners to expire, and limiting the value of the itemized deduction to 28 percent for couples with incomes of more than $250,000 and individuals with incomes of more than $200,000 – a proposal that would be likely to affect giving to charitable organizations, including Goodwill.

As expected, the proposal is receiving a partisan reception on Capitol Hill; however, the administration is betting that such steep automatic spending cuts to discretionary spending programs will force Republicans to cut a deal at the 11th hour.