US Congress Braces for an Ugly Year of Fiscal Trench Warfare

Published Jan 3, 2012. By John Shaw. In Market News International.

WASHINGTON (MNI) - Of the many possible visual images to portray what is likely to occur between Democrats and Republicans on Capitol Hill this year, the trench warfare battles of World War I seem particularly apt.

Both parties are now deeply dug into their fiscal narratives and show no signs of openness to a broad compromise with the other party. There are likely to be very few brave souls who are willing to leave their respective encampments and seek fiscal common ground--at least until 2013.

"This is not going to be a pretty year for the budget," says Bill Frenzel, a former Republican congressman who is now a guest scholar at the Brookings Institution.

"Both sides will be maneuvering for political advantage. There will be a lot of arm wrestling all year but very little will get done -- at least until the very end of the year. A lot of very important stuff is almost certain to be put off until after the elections," Frenzel said.

Frenzel said Congress must deal with a new debt-limit extension by the end of the 2012 or early 2013 at about the same time that the Bush-era tax cuts are set to expire and across-the-board spending cuts are poised to be triggered in January of 2013.

White House budget director Jack Lew has said he anticipates a "perfect storm" of fiscal issues to hit Washington in December of this year.

Bob Bixby, executive director of the Concord Coalition, said the "fundamental dilemma" that lawmakers will face this year is the competing desires to secure some policy accomplishments versus making sharp distinctions with the other party as the November presidential and congressional elections approach.

"I suspect we will have a contentious year in which very little will get done on the fiscal front. We'll have all the problems we had last year which will get further complicated by the overlay of presidential and congressional elections," Bixby said.

"It, of course, makes sense for Congress to deal early on with the few things that need to get done this year: increasing the debt ceiling and figuring out what to do with the Bush tax cuts. But that probably isn't going to happen for the same reason your college term paper never got done very much before the deadline. I think there is a very good chance that all of these issues will be deferred until after the election," he said.

Budget experts agree that the first weeks of the new congressional session will be largely focused on negotiations on a package to extend the payroll tax cut, extend unemployment insurance benefits and prevent a deep cut in Medicare reimbursements for doctors.

Congress passed a two month extensions of these programs which will expire at the end of February. Both President Obama and congressional leaders say they want to pass a one year extension of these programs, but there are scores of policy details to resolve as well as a $150 billion spending offset package.

Congress is also expected to vote in late January on a resolution to disapprove of the final tranche of the debt ceiling increase that was agreed to last August. The House will probably pass the disapproval resolution, as it did last fall, but it is likely to fail in the Senate as it also did last fall. If the disapproval resolution should pass the Senate, Obama would certainly veto the resolution.

Moving to the 2012 agenda, Obama will deliver his State of the Union address on January 24 and is expected to release his fiscal year 2013 budget on February 6.

The Congressional Budget Office is expected to release its beginning of the year budget and economic report the week of January 23.

After Obama delivers his State of the Union address and releases his FY'13 budget and the CBO has issued its budget report, the House and Senate Budget Committees will work on their FY'13 budget resolutions.

House Budget Committee Chairman Paul Ryan is likely to offer a variation of the fiscal plan he offered last year. It's unclear if Senate Budget Committee Kent Conrad will offer a budget this year. Last year, Conrad wrote a budget late in the spring, but it was never even considered by his committee let alone the full Senate.

While the fiscal debate in the House and Senate is expected to unfold along partisan lines, there are also likely to be some bipartisan budget talks led by the Senate's so-called "Gang of Six" and possibly a bipartisan group in the House. These talks are unlikely to lead to any policy action this year.

Bixby of the Concord Coalition said his greatest concern is the 2012 presidential and congressional campaigns will make deficit reduction in 2013 even more difficult if candidates take hard fiscal stances that are designed to appeal just to their political bases.

"Campaigns are always a dangerous time for fiscal policy. Candidates often make statements and take pledges that make sound fiscal policy more difficult to do when you are trying to govern," Bixby said.

"Despite how discouraging things look now, the one positive development is that we have the Simpson-Bowles template out there that gives us a bipartisan roadmap to begin fixing our deficit problems. It's critical that the Simpson-Bowles template is preserved through this election season," Bixby added.

Erskine Bowles and Alan Simpson chaired a fiscal panel created by Obama and they released a plan that calls for about $4 trillion in deficit reduction over a decade.