Road Ahead Still Uncertain

January 23, 2013 

by Paula Skedsvold

Coming into the new year, the White House and Congress averted one major issue in the ongoing fiscal cliff debates, what to do about expiring tax cuts. With this aside, several other significant fiscal issues remain: sequestration, federal debt limit, and funding for the federal government operations.

With the adoption of the American Taxpayer Relief Act (ATRA), lawmakers extended tax cuts for the middle class and postponed huge across-the-board cuts to almost all domestic and national security programs, including those that fund U.S. R&D — but only temporarily. Sequestration is now scheduled to occur on March 1, unless Congress and the White House agree to a different deficit reduction plan.
 
NIH Director Francis Collins told Politico that sequestration would be a “profound and devastating blow” for medical research. Collins added: “We have seen in the last 10 years basically an erosion of our buying power for medical research by 20 percent, simply because the budget has been flat and inflation has been chewing away at that.” Sequestration, according to recent estimates, would mean an immediate 6.4% drop on top of this. 

The Office of Management and Budget informed agencies to continue spending at current levels while preparing a plan for how they will implement the cuts, using flexibility where possible to minimize the impact. 

As if sequestration were not enough, the looming cutoff for raising the debt ceiling could have deeper impacts on the U.S. fiscal picture. As of this writing, it appears that the U.S. House of Representatives will pass a measure to postpone the decision on the debt limit increase until May 19. The goal of House Republicans is to give Congress more time to agree on a long-term strategy to deal with federal deficits. As additional leverage, conservatives are including a provision that would hold lawmakers’ paychecks in escrow for two years if each chamber does not produce a budget.

In order to lock in agreement among conservative House members for “suspending” the debt ceiling, they have been promised that the FY 2014 House budget will contain huge spending cuts, larger than those proposed in Rep. Ryan’s ultra-lean budget in the last Congress. According to The Hill, conservatives want to balance the budget in 10 years; in contrast, Rep. Ryan’s plan sought to balance the budget by 2040.

Meanwhile the government continues to operate on a Continuing Resolution (CR), with FY 2013 funding at FY 2012 levels. The CR is set to expire on March 27. Congress could extend funding for the remainder of the year at current levels or try to force additional cuts. If the House and Senate do not agree by March 27, the country will face a government shutdown.

All of the uncertainty is delaying the President’s FY 2014 budget proposal which is usually delivered to Congress in early February each year. At present, it appears that the White House will roll out the budget for the new fiscal year in March.