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Category: Budget

Sequestration: The Bottom Line

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While it may seem that the White House has been more focused gun control and immigration over the past several weeks, President Obama is expected to make the economy his central theme and renew his call to avoid sequestration when he delivers his State of the Union tonight. There are just 17 days until the sequester is schedule to take effect and the President is certain to call for new tax revenue to avoid the $85 billion in spending reductions due March 1st even as Republicans reiterate their strong opposition to any new revenues.

Meanwhile, Senate Democrats will soon release a proposal to replace the across-the-board cuts with new revenue and other spending reductions. This is most likely a short-term fix through the end of the calendar year, possibly setting up Congress for another New Year’s battle on spending cuts. But it appears that the Senate proposal is unlikely to get any support from Republicans, which is why so many believe that sequestration will happen on March 1st.

The bottom line: If Republicans cannot get a new deal involving entitlement cuts but without new tax revenue, they prefer accepting sequestration cuts to defense programs as the price of getting some cuts to domestic programs. If Democrats cannot get a deal involving more tax revenue but without entitlement cuts, they prefer accepting sequestration cuts to domestic programs as the price of getting some defense cuts.  The cuts will reduce domestic programs by 5.1 percent and defense by 8 percent, but since they come in the middle of the fiscal year, the impact is closer to 9 percent for nondefense and 13 percent for defense programs. Many federal agencies will likely see 14-day furloughs for employees and layoffs for new hires.

Another Short Term Sequestration Fix?

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Senate Democrats plan to announce a short-term sequester replacement bill this week aimed at combining alternative spending cuts and new tax revenue to avert $85 billion in automatic spending reductions scheduled to begin taking effect March 1st. Republicans, who adamantly oppose any use of tax revenue to replace the sequester, are not part of the broader discussions with democratic senators. It is possible that the Senate will consider the yet-to-be-released measure the week of February 25th, after next week’s Presidents Day recess.

The Week Ahead

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Both the House and Senate are out of session today. The Senate returns to work at 2:00pm Monday and will vote on a series of amendments to the Violence Against Women Act (S 47). A vote on final passage could come as early as Monday night. The House returns to work on Tuesday.

President Obama will deliver his State of the Union address on Tuesday evening. It is widely expected that he will focus on fiscal issues, including the deficit and taxes, and will call for Congress to come together to avoid the next fiscal cliff. It is also expected that he will address energy and climate issues, as well as gun control and immigration. All of these priorities will likely be reflected in his budget request, which will be released to Congress in early March.

On Tuesday morning the Senate Budget Committee, chaired by Senator Patty Murray (D-WA), will hold a hearing on the budget and economic outlook prepared by the Congressional Budget Office, and then on Wednesday that same committee will hold a hearing on the impact of budget decisions on families and communities. The House Budget Committee will hold also hold a hearing on the economic outlook on Wednesday.

Also on Wednesday, the House Armed Services Committee will hold a hearing titled “Impacts of a Continuing Resolution and Sequestration on Defense.” Congressman Adam Smith (D-WA) is the ranking member on this committee.

The Senate Judiciary Committee will hold hearings on comprehensive immigration revision Wednesday morning, this first of many hearings on this topic.

On Thursday (Valentine’s Day), the House Ways and Means Committee will hold a hearing on the itemized deduction for charitable contributions and on previous proposals to modify the deduction and its value. Congressmen Jim McDermott (D-WA) and Dave Reichert (R-WA) are both members of this committee.

Also on Thursday, the House Energy and Commerce Committee will hold a hearing titled “Sustainable Growth Rate: Data, Measures and Models; Building a Future Medicare Physician Payment System.”

Bill Introduced to Protect NIH from Sequestration

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Today, Congressman Jim McDermott (D-WA) joined his colleagues to introduce a bill to stop the across-the-board budget cuts scheduled for March 1st with a balance of increased revenue and sensible investments. The Balancing Act will halt impending automatic federal budget cuts, known as “sequester,” which would threaten important national investments like those in medical research—a staple of Washington State’s economy.  Read more here.

 

Obama Calls for Balanced Approach to Deficit Reduction

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Today President Obama called on lawmakers to quickly pass a package of limited spending cuts and tax changes that can head off the automatic, across-the-board reductions — or sequester — that are set to take effect on March 1st. Obama will acknowledge that a broader budget agreement is unlikely to be reached by next month’s deadline when the cuts to domestic and military programs will go into effect, so is now urging Congress to avoid cuts in spending through a balanced approach that raises new tax revenue by closing loopholes on wealthy Americans and the oil and gas industries. The push by the President to avoid the sequester is also an admission that efforts to reach a bigger deal with Congressional Republicans to cut spending and raise revenues is not likely to be reached in the coming months.

Also happening today, the Congressional Budget Office (CBO) projects the 2013 federal deficit to be $845 billion, the first time the non-partisan Congressional Budget Office has forecast a deficit below $1 trillion under the current Administration. The reduction in the budget deficit is due to the actions Congress took on New Year’s Day to avoid the fiscal cliff by approving higher tax rates on households with annual income above $450,000. But the long-term forecast from CBO shows the fiscal cliff deal that prevented higher tax rates on most households did little to help the nation’s long-term budgetary outlook. CBO sees the deficit falling to $430 billion by 2015 before slowly rising again. By 2023, CBO projects the nation will be nearing the $1 trillion mark with a $978 billion budget deficit as the aging population and rising health costs explode entitlement spending.