Line Items: New Year and New Fears Edition

Jan 7, 2014

Out with the Old, In with the ? – 2013 is history and 2014 is just underway. While the New Year is usually a time for optimism, this year begins with many questions and concerns. Although there is hope for stronger economic growth in 2014, there is still much anxiety. Moreover, a new poll indicates that few voters think our political system is functioning properly, with little optimism that Washington will be able to address the major problems facing the country, including the national debt. The past year was the least productive for Congress since 1947 when measuring the total number of bills passed and another poll shows many Americans see it as the least productive in their lifetime. Record-low congressional approval ratings underscore the damage such ineffectiveness has caused. If Washington is to improve its performance and regain the trust of Americans, it must start with carrying out the most basic function of government, agreeing on a federal budget. The budget deal approved by Congress and signed by the president last month is a step in the right direction, but much more needs to be done. As Congress gavels in its 2014 session this week, more tests are around the corner with government funding expiring January 15 and the debt ceiling rearing its ugly head again next month. While there is lots of work to be done, with 2014 an election year with control of Congress at stake, there is little hope of much cooperation across the aisle. President Obama will have an opportunity to present his vision on January 28 in his State of the Union address. Will Washington exceed expectations in 2014?   

May Old Appropriations Be Forgot – Years of going from one stopgap measure to another to fund the government may be coming to an end. Appropriators were busy over the holidays negotiating federal spending bills based on the overall spending level agreed to in to the Bipartisan Budget Act. Congressional appropriators say they are very close to finalizing an omnibus bill tying together the 12 annual spending bills and may complete work by the end of the week. Lawmakers face a January 15 deadline to agree on funding the government in order to avoid another shutdown. The biggest obstacle could be politically-motivated policy riders that some legislators want to include. This week will be a pivotal one in determining if agreement can be reached as time runs short. Lawmakers may end up passing another continuing resolution for just a couple of days in order to buy some time to pass the omnibus.   

Some Have 2013 Regrets – Some lawmakers enter the New Year regretting some things that were done in 2013. Namely, extended unemployment benefits expired on December 28 and the Bipartisan Budget Act reduced Cost-of-Living-Adjustments (COLAs) for military pensions for those under 62. Legislation reversing both these actions is being considered. On Tuesday the Senate voted to lift a filibuster on a three-month extension of expanded unemployment insurance as President Obama promoted an extension at a White House event. A vote on final passage could come at the end of the week. The three-month extension is intended to buy time to adopt a year-long extension and the $6 billion cost is not offset. House Speaker John Boehner (R-OH) said that the House would only consider an extension that is paid for with cuts elsewhere in the budget. Senate Majority Leader Harry Reid (D-NV) and House Minority Whip Steny Hoyer (D-MD) both indicated that Democrats would be willing to consider offsets. Any extension should be paid for and we highlight several ways to offset it. Likewise, while some vow to to reverse reforms to military pensions, it is unclear how they will replace those savings. We took a look at the reforms and why they are needed. While it is tempting to adopt such policies without paying for them, abiding by pay-as-you-go (PAYGO) rules is critical both economically and fiscally.      

New Year Brings New Focus on Doc Fix – The budget deal was paired with a three-month delay of a 24 percent reduction in Medicare payments to physicians while lawmakers continue work on a permanent “doc fix.” Last month both the Senate Finance Committee and House Ways and Means Committee approved of bills to permanently fix the Sustainable Growth Rate (SGR). In what is a recurring theme, finding a way to pay for the cost of about $117 billion over ten years is the main holdup at this point. 

Waiting for a Debt Ceiling Resolution – The New Year brings a new debate over the statutory debt ceiling. Congress last year agreed to “suspend” the debt limit until February 7. Last month Treasury Secretary Jacob Lew warned lawmakers that “extraordinary measures” could only hold off a default for about a month after the suspension is lifted. While some Republicans want to concessions in exchange for raising the limit, others are urging restraint

What Does 2014 Hold for Tax Reform? – Senate Finance Committee Chair Max Baucus (D-MT) and House Ways and Means Committee Chair Dave Camp (R-MI) had hoped to put forward legislation fundamentally reforming the tax code in 2013, but the government shutdown and other factors delayed action. Now that Baucus has been nominated to be the U.S. Ambassador to China, the future of tax reform is unclear. However, there are still signs that progress will be made. Baucus has released several tax reform discussion drafts and another on infrastructure is expected soon. We recently looked at his ideas for reforming energy tax incentives. Baucus set January 17 as the deadline for tax reform comments. In addition, the likely successor to Baucus as head of the Finance Committee, Sen. Ron Wyden (D-OR), is also committed to tax reform. Meanwhile, the need to address the 55 tax breaks known as the “tax extenders” that expired at the end of the year will ensure that tax reform remains a key piece of conversation on Capitol Hill. 

Social Security Debate Heats Up – While the temperatures in much of the country have been frigid, discussion of Social Security reform has warmed up. We set the record straight regarding suggestions by some that the financing problems faced by the program are not real. And we noted the warnings from one Social Security Trustee about proposals to expand the program without addressing the underlying financial shortfalls. Try your own hand at strengthening the vital program with our Social Security Reformer.  

Key Upcoming Dates (all times are ET)

January 9

  • House Committee on Government Reform and Oversight hearing on "Waste in Government: What's Being Done?" at 9:30 am.

January 10

  • Unemployment report for December.

January 13

  • Treasury budget report for December.

January 15

  • The continuing resolution funding the federal government expires.
  • 2014 sequester cuts take effect.
  • First set of IPAB recommendations expected.
  • Federal Reserve Beige Book release.

January 17

  • Tax reform comments due to Senate Finance Committee.

January 28

  • President Obama delivers the State of the Union address.

February 3

  • Statutory deadline for the President to submit the Fiscal Year 2015 budget request.

February 7

  • The extension of the statutory debt ceiling expires.

March 31

  • "Doc fix" expires.

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