‘Line’ Items: New Year, Old Battles Edition Weekly Update on Budget and Fiscal Policy Developments and a Look Ahead
Should Old Reluctance Be Forgot? – A new year and a new Congress have been ushered in. However, hopes for putting behind the fighting and foot-dragging of the past are fading as quickly as the Redskins playoff hopes. The stage is set for a series of budget battles this year with both sides already laying down their markers. While the players and owners in the NHL may have settled their differences, the fiscal cliff deal did little to settle the budget disputes in Washington. Be prepared for more budget drama in 2013.
Fiscal Cliff Avoided, but Issues Remain – Washington briefly went over the fiscal cliff on New Year’s Day, but Congress approved of an agreement pulling the country back from the cliff, if only temporarily. While the deal addressed the tax components of the equation, renewing tax cuts for families earning under $450,000 and extending a series of tax breaks, it put off the across-the-board spending cuts known as the sequester for two months, guaranteeing yet another budget battle. At the same time, the deal did little to address the country’s fiscal problems, as we pointed out, saving only $650 billion over ten years compared to current policy and actually costing $4.6 trillion over that same period according to the official current law baseline that assumed all the tax cuts would expire. While the deal lessened the short-term economic impact of the cliff by more than half, the unsustainable long-term debt trajectory was barely dented. Former Fiscal Commission co-chairs Alan Simpson and Erskine Bowles called the deal a “missed opportunity” to get a comprehensive plan to address the debt even though the cliff was set up to compel both sides to forge such a plan. The fiscal cliff is the latest in a long line of missed opportunities to seriously deal with the national debt. The Fix the Debt Campaign advises everyone to “Hold Your Applause” for the deal since there is still much work to be done.
Debt Ceiling Déjà Vu? – The U.S. officially hit the statutory debt limit as the new year dawned. The Treasury Department is using “extraordinary measures” to stave off a default. Such actions should be sufficient until around the end of February, at which time the debt ceiling will have to be raised in order to prevent a national default. Republicans want to use the debt limit to enact spending cuts at least equal to the amount of the debt ceiling increase while President Obama has said he will not negotiate over the debt limit, expecting a clean increase to avoid an economic calamity. Keep track of debt ceiling developments here, and read our primer for a refresher on the topic.
Dropping the Budget Ball – Even though we are a quarter of the way through fiscal year 2013, the spending picture for the year is not yet fully resolved. A stopgap measure funding the federal government expires on March 27. While House and Senate lawmakers are working to craft a spending package for the remainder of the year, a government shutdown may be threatened over the issue of spending cuts. On top of that, debate over the FY 2014 budget will soon begin. The White House has already said that it has delayed the budget process because of the fiscal cliff and the upcoming negotiations, meaning it could miss the standard deadline of the first Monday in February to present its proposal. Fixing the dysfunctional budget process remains a necessity. On a somewhat related note, the House approved continuing the ban on earmarks.
Tax Reform on the Agenda – The fiscal cliff deal was not the last word on taxes. Congress plans to take up a fundamental rewrite of the tax code this year. Democrats want to raise additional revenue by limiting or eliminating deductions and other preferences known as tax expenditures, while Republicans want reform to be revenue-neutral. CRFB shows how fundamental tax reform can reduce rates and the deficit by dealing with tax expenditures.
Sandy Aid Moves – Last week, Congress approved legislation authorizing $9.7 billion in additional flood insurance for victims of Hurricane Sandy. Next week the House is expected to take up a larger $51 billion package that includes funding for Sandy recovery and rebuilding efforts as well as projects to mitigate the effects of future disasters. Whether any of the funding should be offset will be a matter of some dispute. This is yet another example of the need for Congress to improve how it budgets for disasters.
Key Upcoming Dates (all times are ET)
- Dept. of Labor's Bureau of Labor Statistics releases December 2012 Consumer Price Index data.
- President Obama publicly sworn in for his second term (a private swearing in will occur on Sunday the 20th, the technical inauguration date).
- Bureau of Economic Analysis releases advance estimate of 2012 4th quarter and annual GDP.
- Dept. of Labor's Bureau of Labor Statistics releases January 2013 employment data.
- By law, the President's budget must be submitted by the first Monday in February, occurring February 4 this year.
- Dept. of Labor's Bureau of Labor Statistics releases January 2013 Consumer Price Index data.
- Bureau of Economic Analysis releases second estimate of 2012 4th quarter and annual GDP.
- Across-the-board cuts to defense and non-defense discretionary spending prescribed in the Budget Control Act, known as "sequestration," will take effect.
- Dept. of Labor's Bureau of Labor Statistics releases February 2013 employment data.
- Current continuing resolution (CR) funding the federal government expires.
- Bureau of Economic Analysis releases third estimate of 2012 4th quarter and annual GDP.