Fiscal cliff averted, but new budget battles loom

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WASHINGTON — The down-to-the-wire fight over the fiscal cliff was only a prelude to upcoming budget battles.

Most imminently, the need to raise the debt ceiling could foment a crisis as soon as late February.

President Barack Obama says he will not let Republicans threaten to maintain the ceiling — thereby closing down the government — as a way to extract deeper federal spending cuts.

Senate minority leader Mitch McConnell (R., Ky.) has not ruled out a government shutdown as a means of forcing Obama to accept large spending cuts.

“We simply cannot increase the nation’s borrowing limit without committing to long-overdue reforms to spending programs that are the very cause of our debt,” he said. “It’s a shame that we have to use whatever leverage we have in Congress.”

Obama says he’s open to considering spending cuts in some programs. But spending talks, he says, must be separated from GOP threats to prevent the government from paying its bills, including interest on foreign-held debt.

“I will not have another debate with this Congress over whether or not they should pay the bills that they have already racked up through the laws that they passed,” the president said. “If Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be ­catastrophic.”

It had been customary for Congress to raise the debt ceiling every year or two. But that changed in 2011.

Republicans warned then they would block a debt ceiling hike unless the president and congressional Democrats agreed to hefty spending cuts. Obama, seeking a far-reaching “grand bargain,” offered to raise premiums, co-payments and the eligibility age for Medicare, and to slow cost-of-living increases for Social Security benefits.

Republicans settled for about $1 trillion in spending cuts over a decade, and the government was barely able to keep paying some bills. Financial markets were shaken up, and Standard & Poor’s lowered the nation’s credit rating.

This month the fiscal cliff was averted when McConnell and vice president Joe Biden forged compromise legislation. While the deal provided short-term economic certainty, its increase in payroll taxes could hurt retail sales. A worker earning $50,000 a year will pay about $1,000 more in federal taxes as Social Security taxes revert to a 6.2% rate from the 4.2% of the past two years.

The higher tax, which applies to income under $113,700, will take some $117 billion out of paychecks in 2013, says David Kelly, global chief strategist at JPMorgan Fund.

“A lot of the things that people spend an extra $50 on will be hit by this,” Kelly told ­Reuters.

Peter Tuz, portfolio manager of the $125 million Chase Growth fund, told the wire service that he sold his stock in Target Corp. late last month because of a concern that the tax hike would hurt the chain’s lower-middle-income customer base.

On the other hand, by not raising income taxes for individuals earning less than $400,000, the compromise legislation could bolster manufacturers of branded consumer staples, such as Procter & Gamble Co. and Coca-Cola Co.

Matthew Shay, president and chief executive officer of the National Retail Federation, said, “This agreement might not be seen as perfect by everyone, but it gives American consumers and businesses the certainty they need to put worries over this issue behind them and get on with the business of growing our economy and creating jobs.”

Implications for retail pharmacy from the deal include cuts to Medicare Part B reimbursement for diabetes testing supplies. As part of the Medicare Modernization Act, a competitive bidding program was established for durable medical equipment.

The National Association of Chain Drug Stores, in partnership with members and other stakeholders, had been successful in carving retail pharmacy-provided diabetes testing supplies out of the competitive bidding program or its reimbursement amounts until 2016.

However, including these supplies in the competitive bidding program has been on the short list of budget savers or “payfors” for the last several years. The provision in the fiscal cliff legislation would apply mail order reimbursement rates to retail pharmacy-provided supplies on April 1.


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