Economic Outlook for 2013

Posted on August 29, 2012October 17, 2012

The Congressional Budget Office (CBO) yesterday released its updated “Budget and Economic Outlook: Fiscal Years 2012 to 2022.” According to CBO:

“For fiscal year 2012 (which ends on September 30), the federal budget deficit will total $1.1 trillion, CBO estimates, marking the fourth year in a row with a deficit of more than $1 trillion. That projection is down slightly from the $1.2 trillion deficit that CBO projected in March. At 7.3 percent of gross domestic product (GDP), this year’s deficit will be three-quarters as large as the deficit in 2009 when measured relative to the size of the economy. Federal debt held by the public will reach 73 percent of GDP by the end of this fiscal year—the highest level since 1950 and about twice the share that it measured at the end of 2007, before the financial crisis and recent recession.”

In addition, CBO projects that the nation will enter into a deep recession in 2013 if Congress fails to address the sequester and the expiring Bush tax cuts. CBO also suggests that going over the “fiscal cliff” would disrupt economic progress, reduce real GDP by 0.5 percent, and push unemployment over 9.1 percent.

The outlook is darker than the forecast the agency released in January, when CBO predicted that the fiscal cliff would trigger a modest recession in the first half of 2013, followed by a quick recovery. The expiring “extenders” package for unemployment benefits and payroll tax holiday, coupled with a weaker economy has made the 2013 outlook more dire. Reactions and analyses of CBO’s report are available from the Center for Budget and Policy Priorities, and the Bipartisan Policy Center.

Obama Calls for Compromise on Sequester

Posted on August 21, 2012October 17, 2012

President Obama said Monday that he thinks both parties can compromise and avert the across-the-board spending cuts under sequestration that could take sizable cuts out of both defense and non-defense discretionary spending. In an interview with The Virginian-Pilot’s military editor that focused on the sequester — the 10-year, $500 billion cut to both defense and non-defense discretionary spending set to hit in January 2013 — Obama said that both Democrats and Republicans have to give to reach a deal.

Despite the President’s call for compromise on sequestration, the two parties remain deadlocked on a solution to avert the cuts, which both parties consider bad policy. Obama and Democrats have said that Republicans are protecting tax cuts for the wealthy over the defense cuts, while Republicans say that Democrats are holding the military hostage to force tax increases.

No action on this will be taken until after the November elections. And, based on past efforts to reduce the national debt, it is still unclear whether or not either party is willing to compromise to reach a middle ground or “grand bargain” on this effort. Time will tell. In the meantime, we are advising the UW community to plan for a potential of 8.4% (or more) cuts to federal grants and contracts.

Sequestration Transparency Act Signed Into Law

Posted on August 10, 2012October 17, 2012

On August 7th, President Obama signed into law HR 5872, the Sequestration Transparency Act (PL 112-155). As previously reported on this site, in July, Congress overwhelmingly cleared the bill which requires the Administration to report, within 30 days, the effects of the automatic budget sequester at the “program, project and activity level.” The Administration will have to clarify the reductions that will result from the looming across-the-board cuts of sequestration. This information will be made public shortly after Labor Day, and should help UW and others plan for the impacts of sequestration.

OMB Issues Sequester Memo

Posted on August 1, 2012October 17, 2012

In a memo to federal agencies dated July 31, 2012, the Office of Management and Budget (OMB) indicated that military personnel would be spared in automatic budget cuts due early next year and that agencies should continue normal spending and operations even with the potential reductions just five months away. OMB Acting Director Jeff Zients said in the memorandum that OMB officials will meet with departments to discuss how the cuts under sequester work and what programs could be exempt. Up to now, administration officials have indicated that they believe Congress will find a way to avoid the sequester, and the White House still believes a budget agreement to replace the sequester is possible. In the meantime, Zients suggested agencies not adjust their rate of spending at the October 1^st start of the fiscal year but “continue normal spending and operations since more than five months remain for Congress to act.”

Read the OMB memo.

CR Through March 2013

Posted on July 31, 2012October 17, 2012

Well, it’s official! Senate Majority Leader Harry Reid and House Speaker John Boehner have reached a deal to keep the federal government funded for six months, meaning there will be no threat of a government shutdown when the federal fiscal year ends September 30th. The funding deal would keep government spending at current levels through March 2013. Both chambers of Congress will likely vote on the resolution when they return from the August recess the second week in September.