2013: A New Era or a Replay of 2012?

January 2013 marks a number of new beginnings. The 113th Congress was sworn into office on January 3. President Obama was sworn into office on January 20 (officially) and January 21 (ceremonially). And deadlines are looming related to the debt ceiling, sequestration and government funding for the rest of FY2013.

There is some reason to believe that 2013 will not be a replay of 2012. First, the President’s reelection seems to have imbued him with a new sense of confidence and purpose. Certainly his Inaugural Address was unapologetically progressive and more “prose than poetry” as some commentators noted. The Senate has a stronger Democratic majority than it did last year, by two seats. The House has a larger Democratic minority and, more importantly, the Republican majority is showing clear fissures in how to proceed.

With the debt ceiling expected to be reached in the final two weeks of February, House Republicans meeting in retreat in Williamsburg VA last week decided to pass a suspension of the debt limit through May 18, with no attached budget cuts and with the proviso that if neither house of Congress passes a budget resolution by that date, its members will no longer be paid. It is an ironic approach since the budget resolution, while instructive to the Congress, is not signed by the President and does not have the force of law.

So, if the debt limit issue is delayed, that will still leave sequestration, which is scheduled to take effect on March 2, and represents a 5.1 percent reduction in non-defense discretionary spending and the Continuing Resolution which expires on March 27, leaving the entire government unfunded after that date. The President’s Inaugural Address put a high priority on Social Security, Medicare and Medicaid. He did not say they could not be cut; but he was clear that he would not support radical surgery.

Cuts in entitlement programs – just like revenues – lessen the extent of cuts in non-defense discretionary spending, where the Budget Control Act of 2011 already took a $900+ billion bite.

Whether Congress and the White House look to cut more from these programs or more from entitlements combined with additional revenues will go a long way toward clarifying our future fiscal picture.

Perhaps the only consensus at this point is that further delay in addressing these issues is not an option. If that holds, that will be one clear difference between 2012 and 2013.

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