What Will the Budget Deal Do?

The budget deal tempers sequestration and sets government spending levels for two more years, and suspends the debt ceiling. But it isn't the model of fiscal responsibility. It has too many gimmicks and too few reforms. Read our statement. Once the gimmicks are discounted and interest added, only half of the bill is paid for. Read more.

 

The omnibus spending bill keeps the government open, but is full of even more gimmicks. Learn more.

Congress approved a tax extenders deal renewing many tax breaks while expanding some. The cost will add some $830 billion to the debt over a decade and much more beyond that. Learn more.

 

Our plan would deal with the tax extenders in a responsible way while setting the stage for fundamental tax reform. Read the plan.

 

Congress recently reauthorized transportation funding for five more years. But the legislation is full of funding gimmicks that will add to the debt, and the Highway Trust Fund will still face a significant shortfall down the road. Read more

 

CRFB’s plan, The Road to Sustainable Highway Spending, would encourage the passage of tax reform while also ensuring the Highway Trust Fund remains adequately funded regardless of tax reform’s fate. Read the plan.

Two more years of sequester relief were approved in the budget deal, but longer-term solutions are still needed. Our Sequester Offset Solutions (SOS) Plan offers $300 billion of sequester relief that is fully offset.

Read the plan.

 

And Rep. Scott Rigell (R-VA) introduced legislation to permanently replace most of sequestration. Learn more.

 

Inaction and postponed deadlines have created a Gathering Storm where Congress and the President must address several Fiscal Speed Bumps.

 

One recurring challenge is the statutory debt ceiling. Learn all about it.

 

 

 

 

The Fiscal Cliff Resource Page

The United States faced a serious dilemma at the end of 2012 as a combination of steep tax increases and spending cuts were scheduled to occur all at once, known as the "fiscal cliff." A last-minute agreement was reached that diminished the impact of the fiscal cliff.

However, because policymakers have been unable to comprehensively deal with our fiscal challenges, a series of "Fiscal Speed Bumps" consistently arise and are often simply kicked down the road as Washington seeks to buy time instead of invest in solutions. A number of these deadlines converged into a "Gathering Storm" that threatened a new fiscal cliff at the end of 2015. A deal was reached in October 2015 that avoided some of these issues and a tax cut and spending package in December dealt with the remainsing issues, while adding substantially to the national debt.

  

Fiscal Cliff Refresher

The original fiscal cliff referred to the major budget changes that were initially set to occur all at once at the end of 2012 and beginning of 2013. These changes included the expiration of the 2001/2003/2010 tax cuts, the triggering of across-the-board spending cuts through the "sequester," the expiration of the payroll tax holiday, the end of the "patch" protecting many middle-class families from the Alternative Minimum Tax, and the end of the "doc fix" preventing steep reductions in Medicare payments to physicians. As Ben Bernanke remarked at the end of February 2012:

Under current law, on January 1, 2013, there's going to be a massive fiscal cliff of large spending cuts and tax increases. I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date.

The fiscal cliff was minimized and the spending reductions under sequestration were eventually moderated for a couple of years because lawmakers found themselves between a rock and a hard place. While these changes would produce significant deficit reduction, they would do so in an abrupt and careless manner that would impair the fragile economic recovery. On the other hand, an even worse option would be to extend all of the policies with no corresponding offsets, leading to a mountain of debt and all of the associated economic risks.

 

The Gathering Storm

The inability to enact a comprehensive fiscal plan that puts the debt on a clear downward path as a share of the economy in a smart way has resulted in a series of mini cliffs that constantly re-emerge. Several of these Fiscal Speed Bumps converged at the end of 2015.


Appropriations/Sequestration

The new fiscal year began on October 1 without a new spending plan, but a government shutdown has been avoided by a series of short-term stopgap measures. One complicating factor has been sequestration.

The sequester, or sequestration, refers to the annual spending caps that were a part of the fiscal cliff. Many want to replace it with a more sensible approach that deals with all parts of the budget and is less abrupt. The sequester for 2014 and 2015 was replaced by the Bipartisan Budget Act of 2013, also known as Ryan-Murray. Two more years of relief were provided by a deal that became the Bipartisan Budget Act of 2015.

 

Highway Funding

Congress has had difficulty authorizing funding for surface transportation projects on a long-term basis. In addition, the Highway Trust Fund (HTF) has faced shortages because revenues through the gasoline tax have not been sufficient. Sustainably financing infrastructure is critical. Highway funding was renewed for five years in December, but the agreement will still leave a signifcant future shortfall in the HTF.

 

Debt Ceiling

The statutory debt ceiling constantly has to be raised because of rising debt. Reforms to the debt limit should be considered that promote fiscal responsibility without generating much economic risk. The debt limit was suspended until 2017 by the Bipartisan Budget Act of 2015.

 

Tax Extenders

At the end of last year, over 50 temporary “tax extenders” expired. These include individual and business tax breaks for research and experimentation, wind energy, state and local sales tax, and many others. Most are renewed regularly and can be reinstated retroactively through the end of 2015. This could have been an opportunity for comprehensive, pro-growth tax reform that simplifies the tax code, reduces tax rates and deficits, broadens the tax base, promotes growth, and makes thoughtful choices about how to address each tax extender. Instead, lawmakers made a deal that expanded some and made a few permanent, while growing the debt considerably.

 


 

Gathering Storm Resources

 

Appropriations/Sequestration Resources

 

Archive of Appropriations/Sequestration Resources

 

Highway Funding Resources

 

Debt Ceiling Resources

 

Tax Extenders Resources

 

Archive of CRFB Fiscal Cliff Policy Papers and Statements

 

Op-Eds and Articles on the Fiscal Cliff

 

Fiscal Cliff Videos

 

Fiscal Cliff Infographics

 

Fiscal Cliff Interactive and Social Media