Congress adjourns for the elections… What’s next?

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Both chambers of Congress have adjourned for the final campaign stretch before the November presidential elections. A number of critical issues remain unresolved and will need consideration when Congress returns in November through the end of the calendar year. Implications of the Budget Control Act top the list of issues which could trigger a $1.2 trillion reduction in federal spending programs. The impact of such cuts is calculated to raise unemployment to 9% nationwide. The National Association of Manufacturers has listed the below potential impacts of sequestration:

  • 1,010,000 private sector jobs, including 130,000 manufacturing jobs could be lost by 2014.
  • GDP could be 1% lower by 2014.
  • Total job losses could increase the unemployment rate by 0.7 percent.
  • California could experience the largest loss (148,000) followed by Virginia (115,000) with Pennsylvania experiencing (34,700) potential employment loss.

Several bi-partisan proposals have been floated to avert implications of the Budget Control Act. The National Commission on Fiscal Responsibility (Simpson-Bowles) is the most popular proposal which calls on Congress to adopt sweeping reforms in discretionary spending, tax reform, & social security. Momement appears to grow around Simpson-Bowles to adopt large measures in the lame duck Congress which could freeze the potential economic consequences of the Budget Control Act. Below is short list of the proposal’s recommendations:

  • Limit fiscal year 2013 appropriations to FY- 2008 levels and all future outlays to half of inflation through fiscal year 2020.
  • Adopt a 15 cent per gallon gas tax creating a new Highway Trust Fund with spending capped at the above amount through fiscal year 2020.
  • Simplify the tax code to 12%, 22%, and 28% respectively and reduce the corporate tax rate to 28% with individual deductions and charitable giving to be negotiated by Congress and the Administration.

While the acting Congress did not attach a legislative vehicle to repeal the sequester in the Continuing Resolution passed last week, there is still a short opportunity to address this matter in the lame duck session. The problems cited are fundamentally structural and the only viable way to lower deficits will require curbing entitlement spending and raising additional tax revenues. Regardless of potential election outcomes, when the Congress reconvenes on November 13th these challenges will remain.

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