2013 May Be the Year of Perpetual Fiscal Crisis

By :: December 27th, 2012

If 2012 was the year of modest economic recovery and surprising Democratic election success, 2013 may be the year of perpetual fiscal policy crisis.

After watching the still-unresolved partisan battle over the fiscal cliff, it is increasingly hard to imagine Congress and President Obama reaching anything like a big budget deal next year. Instead, it looks as if lawmakers will spend 2013 staggering from crisis to crisis, not unlike a bunch of nasty drunks weaving their way from barroom to barroom.

First, they will somehow have to avoid this year’s cliff. Then, in late winter, they are likely to do fiscal battle all over again as the nation’s borrowing authority reaches its limit and a temporary government funding bill expires. (Yesterday, Treasury said it would hit the debt ceiling on New Year’s Eve, but it can delay the day of reckoning for a few months). At the very least, this will absorb nearly all of Washington’s energy for the first quarter of 2013. And it will leave little time and enthusiasm for a Big Deal.

Then, Congress and Obama may get to do it all one more time next fall when they squabble over the 2014 budget.

Some of this mess could be avoided, of course, if Congress and Obama could agree quickly to a series of budget goals and timetables aimed at least stabilizing the national debt. That was the hope going into the fiscal cliff talks. But chances for such a deal are slipping away.

Part of the problem is the reluctance of Democrats to accept cuts in promised Social Security or Medicare benefits. When news leaked that Obama might be willing to change the way the government measures inflation (an adjustment that would gradually slow the growth of Social Security benefits), the Democratic base went nuts.

But this is not a symmetrical challenge: In the end, Obama could force Democrats to swallow such spending cuts if Republicans agree to additional tax increases. But many Hill Republicans appear absolutely unwilling to do that.

They may accept the imminent demise of the 2001-2003-2010 tax cuts for high-income households. After all, there isn’t much they can do to save them at this point. But they will draw the line there, while Democrats are almost certain to look for additional revenue as part of any grand bargain. And that makes any broad-based tax reform in 2013 very difficult.

As I have written previously, it is not possible to reform taxes unless the reformers first agree on how much the new revenue code is supposed to collect. And the parties don’t seem anywhere near such a consensus.

Lawmakers seem to be on a similar track to nowhere when it comes to Medicare. Both Obama and the GOP recognize that any long-term deficit deal must include big changes in the huge retiree health program. Yet, neither wants to take a first step down that politically fraught road. Remember, Republicans had great political success in 2010 accusing Democrats of cutting Medicare and Obama did well in 2012 by attacking Mitt Romney for his proposals to slow Medicare spending.

In such an environment, neither party is willing to step up, severely constraining any serious efforts to cut planned government spending.

The result: A year where one short-term political crisis follows the next, and one in which big fiscal issues such as tax and Medicare reform are put off for another day. Or perhaps another year.




  1. Eric Beyer  ::  4:36 pm on December 27th, 2012:

    Don’t call them the ‘2001-2003-2010 tax cuts’. Call them what they are – the Bush tax cuts.

  2. Michael Bindner  ::  9:05 pm on December 27th, 2012:

    The big crisis in health care may be in 2013 or 2014, depending on whether the subsidies for getting mandates are adequate to stop people from simply waiting to get sick to buy insurance. If health insurance investors are more risk averse than the uninsured, the problems of Medicare and Medicaid are small as the entire health compensation system simply collapses and is replaced by single payer with new forms of revenue (perhaps a subtraction value added tax with offsets for providing direct care or alternate insurance).

    On the tax side, I am sure members are hearing from major donors who have much more to lose than any “middle class taxpayer.” I expect some kind of deal, if only on estate taxes.

  3. AMTbuff  ::  2:02 am on December 28th, 2012:

    The real fiscal crisis will arrive when foreigners stop buying US government bonds and stop rolling over maturing T-bonds and T-bills. If manufactured fiscal cliffs keep Congress focused on the problem we might have a chance to avoid the real crisis.

    The can-kickers should not assume that the road ahead is endless. It might be a whole lot shorter than they think.

    Let’s start calling the can-kickers fiscal deniers. Maybe that will shame them.

  4. Tax Roundup, 12/28/2012: Last tax planning weekend of 2012. Also: the crisis of unreported pretend income! « Roth & Company, P.C  ::  9:35 am on December 28th, 2012:

    […] Goody: 2013 May Be the Year of Perpetual Fiscal Crisis (Howard Gleckman, […]

  5. Michael Bindner  ::  9:30 pm on December 28th, 2012:

    Until the Europeans create a real central debt and tax system, the world will still flock to the United States for both currency and debt holding.

  6. http://www.brlsi.org/node/34418#comment-12901  ::  8:49 pm on June 29th, 2013:

    Luo Xiaowei hurriedly looked up: No, no way, the company running everything is normal.