In what has clearly become a pattern, Congress is creating the next fiscal crisis to serve as a basis for discussions on spending priorities. In this case it is the soon to expire debt limit, which is the federal government's ability to borrow funds. Although the current statutory $16.4 trillion debt ceiling is scheduled to be breached on May 19th, the Treasury Department has indicated that due to increased tax receipts it has the authority to continue borrowing until the fall. Preparing for that eventuality, and to protect itself from political charges that it could cause the United States to default on its debts with the attendant consequences, such as a market crash and debt downgrading, House Republicans last week passed a bill that would give the Treasury authority to have limited borrowing power to make payments to bondholders and social security recipients, but not for other reasons. This signals that Republicans may intend to use the threat of a government shutdown in the fall of 2013 to achieve fiscal goals, including spending cuts. Democrats, who control the Senate, have indicated the bill is dead on arrival.
House Ways and Means Committee Chairman Dave Camp (R-MI), who is committed to moving an overhaul of the tax code in this Congress, has suggested that tax reform could be put on the table as part of a debt limit-driven deficit reduction plan. Chairman Camp and his fellow Republicans are well into crafting a bill that could be considered by his committee and the House of Representatives later this summer (Senate Finance Committee Chairman Max Baucus (D-MT), who recently announced that he will not seek reelection in 2014, has also indicated that he would like to consider fundamental tax reform in this Congress.)
Meanwhile, House and Senate Appropriations Committees will begin marking up their FY 2014 funding bills this week. The House intends to use a $967 billion baseline, which assumes that the Sequestration will continue. Senate Democrats will use as its baseline $1.058 trillion, which assumes the Sequestration is no longer in effect. It is clear that there will not be a budget resolution agreed to by both Houses and thus each side will have its own baseline which will have to be resolved in appropriations bills. If the past is any indication, the issue will drag on into 2014 after a series of continuing resolutions have been enacted to avoid a government shutdown.
So the stage is being set for another fiscal showdown at the end of this year. The President has indicated that he would like a long-term solution to the ongoing and repetitive fiscal cliffs. In theory this could remove the mandate of the Sequestration, which calls for cuts in the range of 8-10% every year for the next 9 years. With the American public increasingly growing weary of Washington's actions, sooner or later there must be a budget deal that lasts more than a few months. With President Obama running out of time to be a meaningful participant in a deal before his negotiating powers are weakened by his lame duck status, and with the control of Congress at stake once again in 2014, this next debt limit crisis could serve as a basis for a more enduring solution.