The Fiscal Speed Bumps Ahead: After the Debt Ceiling
Last month, we highlighted the “fiscal speed bumps” resulting from the fiscal cliff deal. With the signing of the bill which temporarily waived the debt limit by President Obama on Monday night, we can scratch off one fiscal speed bump and add three more.
Congress temporarily delayed dealing with one of several unsolved budget issues until mid-May by passing H.R. 325. The law suspends the “debt ceiling” for several months, giving the government authority to keep borrowing money to meet its obligations. The debt limit will be reinstated on May 19, with extraordinary measures likely delaying a debt limit crisis until August. The bill also added another provision that requires the House and Senate to pass a budget resolution in their respective houses in order for members to receive their pay on time. However, like some of the provisions in the American Taxpayer Relief Act (ATRA), which pulled the country back from the edge of the “fiscal cliff,” this new policy is just a short-term patch and there are still several speed bumps in the next couple of months that deserve the attention of Congress.
The updated infographic below shows instances where temporary measures expire or new policies take effect, serving as a reminder of just how busy fiscal challenges will keep Congress, especially in the next two years.
Speed bumps in the next year include:
- Sequestration takes effect: The fiscal cliff agreement delayed across-the-board cuts of $85 billion in this fiscal year under sequestration only until March 1. The cuts will be evenly divided between defense and domestic spending.
- FY 2013 Continuing Resolution expires: The current continuing resolution to fund the government will expire on March 27, which would trigger a government shutdown if neither a budget nor another continuing resolution is passed. If the federal government shuts down, all federal programs and services, except for the most essential, will be suspended. Additionally, if no budget resolution is passed by the April 15 deadline, on April 16th, members of Congress will have their salaries held in escrow until they pass a budget resolution.
- Debt ceiling reinstated: The recent legislation has essentially kicked the can down the road in the debt ceiling debate until May 19, at which point the Treasury Department will have to again undertake "extraordinary measures" to provide additional headroom. Congress will have to act to raise or waive the debt ceiling or risk a default on outstanding obligations once all of the extraordinary measures are finally exhausted over the summer.
- Lower interest rates on student loans expire: Congress extended the 3.4 percent interest rate on federal Stafford loans last June for one year. That extension will expire on July 1, 2013 and interest rates on these loans will jump to 6.8 percent.
- Extraordinary debt ceiling measures are exhausted: After the U.S. officially hit the federal debt limit on December 31st, the Treasury Department began taking a number of “extraordinary measures” that provided $200 billion of headroom to prevent a default on outstanding obligations. Given the risk of default and the indefiniteness of the debt ceiling abatement, the exhaustion of the extraordinary measures could leave the U.S. on the brink of a default with many very serious implications for the economy.
- “Doc Fix,” farm bill, unemployment benefit extension, and tax extenders all expire: Many policies in the fiscal cliff package were only extended for one year. The expiration of the “doc fix” would cut Medicare physician payments by at least 25 percent in 2014. The maximum number of weeks individuals could collect unemployment benefits would fall from 73 weeks to 26. The farm bill would expire, with some laws reverting back to 1949. Additionally many individual and business “tax extenders” would expire, although these can be made retroactive in 2015 after they have expired (as the ATRA did). Once these extensions expire, doctors could stop seeing Medicare patients because of the sharp cut in payments and milk prices could go up steeply.
Not all of the speed bumps are bad policies that should be avoided. Some are temporary policies that truly were intended to be temporary measures to help the economy recover and should be allowed to expire as our economy continues to recover. Some are intentional deficit-reducing policies that should take effect as scheduled. Other policies, however, can and should be replaced with smarter, more targeted reforms.
It’s tempting to breathe a sigh of relief as H.R. 325 goes into law and we dodge another fiscal bullet just over a month after passing ATRA. ATRA eliminated many of the more fearsome fiscal challenges posed by the fiscal cliff, but the truth is that there are many more challenges coming down the pike. But the speed bumps we’ll face this year and beyond are as much opportunities as they are obstacles. If lawmakers take advantage of them, they can make meaningful progress toward reducing our deficits and making our debt sustainable.