There Are Three Big Fiscal Battles That Need To Be Resolved In Just The Next Two Months

By admin on January 8, 2013

Washington, DC

Quick reminder that they’re are three huge fiscal battles that are coming up soon.

They are: The debt ceiling, the sequester (the automatic spending cuts), and the new budget.

Goldman’s Alec Phillips puts them into timing and context:

Q: How does the debt limit relate to other upcoming fiscal debates? A: The debt limit is the most important of three separate fiscal issues Congress must address in Q1. Beyond the debt limit, congressional leaders and the President must work out two other issues: further delay in spending cuts under “sequestration” and an extension of government spending authority. While these are separate issues, it is clearly possible that all three could be wrapped up into one agreement. Spending cuts under sequestration are scheduled to take effect from March 1, 2013. Those cuts had been scheduled to take effect January 1, but were delayed two months as part of the fiscal compromise reached last week. In the upcoming debate lawmakers will aim to delay those cuts once again, offsetting the increased spending that would result with savings (spread over ten years) from other areas of the budget.

A month later, on March 27, the temporary extension of spending authority (known as a “continuing resolution”) that Congress enacted last year expires. Congress is likely to extend spending authority to September 30, the end of the current fiscal year, but lawmakers must first agree on a spending level. If no agreement is reached by March 27, all non-essential government operations funded by congressional appropriations would cease. However, while this sounds severe, it is far less of a risk to the economy or the market than a failure to raise the debt limit, since the lapse would be temporary and the payments that would cease are clearly categorized, would have no effect on Treasury financing nor on most payments to individuals, and are of a smaller overall size.

It really does appear as though the combination of these issues will make the January 1 fight over taxes seem like a walk in the park.

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