Checking under the sofa for a spare $1 trillion.
By now, readers who are employed may have received an altered paycheck, and wondered again just how the American Taxpayer Relief Act (ATRA), which was signed by the president early in 2013, changed several tax laws. For example, the payroll tax "holiday" expired, so your check probably reflects increased Social Security withholding.
The White House released information on ATRA that explains its provisions, along with the administration's take on the legislation.
ATRA raises approximately $620 billion in new revenues and will save more than $100 billion in federal interest payments, according to the Office of Management and Budget. Instead of tackling sequestration directly, ATRA delays sequestration until March 1, 2013, allowing more time for Congress and the administration to negotiate a solution.
Because of the revenues raised, ATRA also reduces the total amount subject to the sequester over the next nine years by $24 billion. So the annual cuts would be smaller, around $107 billion per year instead of $109 billion per year before ATRA. The organization Federal Funds Information for States (FFIS) has released an estimate of the new sequester cuts following enactment of ATRA. Should the sequester take effect in March, FFIS predicts that the cut to non-defense discretionary accounts will be 5.9 percent across the board.
Last year’s uncertain budget picture has become this year’s uncertain budget picture. Federal agencies must continue to plan for the possibility of large 2013 budget cuts, which, if they should happen, would be proportionally more onerous since they would necessarily be distributed over fewer months of the fiscal year.
Keep in mind, to make the threat of spending cuts go away, it will take revenue —approximately $1 trillion to cancel sequestration. And remember it’s very unlikely Congress would go along with a proposal to completely avoid any new spending cuts. The "Boehner Rule" for deficit reduction pushed by the House leadership is $1 in cuts for every $1 in revenue. But wait, there’s more: to stabilize the debt, according to the Center for Budget and Policy Priorities, around $1.4 trillion is needed —the House leadership is very adamant on this principle, though it might quibble with the amount needed. And to raise the debt ceiling for a year (did we mention, Speaker Boehner’s position is, again, $1 of spending cuts for each $1 increase in the debt ceiling) an additional $1 trillion is needed.
That’s right, another wild card is the federal debt ceiling, which must be raised soon —some say, mid-February, others say mid-March— to avoid default on U.S. financial obligations. Although the administration has declined to pursue creative ways of raising the debt ceiling without Congress’s approval (nope, no trillion-dollar coin!) the president has said he will not negotiate with Congress to pay debts the nation has already incurred. The congressional leadership has a different view.
The White House will present its fiscal year 2014 budget a few weeks late, likely in late February. In the meantime, the government is funded via continuing resolution at 2012 levels through the end of March. Congressional appropriations committees are working on completing the 2013 funding bills in the absence of information about whether sequestration cuts will be applied to the bills before the year ends.
It’s all pretty gloomy, and gloomily familiar. But most observers agree that the real dysfunction isn’t that the philosophical and policy differences between parties are so large. The breaking point has been a lack of willingness to compromise and work across party lines. That’s the real significance of the passage of ATRA: the administration and Congress were able to reach agreement (in the classic way that satisfied nobody) and avoided some genuinely bad consequences. So your blogger is thinking of it this way: the financial-policy machinery may be broken, but the players still know their way around duct tape. Sometimes duct tape is all you need.