The Fiscal Landscape: Minefields and Opportunities
- Expiration of Tax Extenders and Extended Unemployment Insurance
A number of temporary tax breaks – often called the “tax extenders” – that impact an extremely broad range of industries and individuals are scheduled to expire at the start of the New Year. These breaks range from tax deductions for classroom expenses incurred by school teachers to deductions for state and local sales tax and accelerated depreciation rules for business property on Indian reservations. They are projected to cost a total of $797.9 billion if they are all extended for every year from 2014 to 2023. Under statutes enacted beginning in 2008 to combat the recession, individuals could collect Unemployment Insurance benefits (UI) for more than 26 weeks, up to a maximum of 73 weeks in states with the highest unemployment rates. Starting on January 1, 2014, this program of federally funded extended unemployment insurance ended and the maximum duration of benefits available in any state decreased to 26 weeks. CBO estimates that reinstating the extended benefits through the end of 2014 would cost $25.2 billion for the period from 2014 to 2023.
- Continuing Resolution Expires
The continuing resolution funding the federal government for Fiscal Year (FY) 2014 that was enacted in October will expire on January 15, and new appropriations legislation that meets the Bipartisan Budget Act’s discretionary spending cap of $1,012 billion for fiscal year 2014 will be required in order to prevent another government shutdown. Currently, discretionary appropriations are being funded at an annualized level of $986 billion, which is a continuation of the post-sequester levels from FY 2013.
- Debt Limit Reinstated at Approximately $17.3 Trillion
Absent action from Congress, the debt limit will be reinstated on February 8, 2014 at approximately $17.3 trillion, reflecting roughly $600 billion in deficit spending and increased intragovernmental debt since the limit was previously reinstated on May 19, 2013. Once reinstated, the U.S. will be up against its debt limit and the Treasury will immediately begin deploying “extraordinary measures” – legal accounting maneuvers that reduce intragovernmental debt and allow the Treasury to raise a limited amount of cash – to comply with the debt limit and continue meeting all financial obligations of the federal government for an additional period of time.
- Extraordinary Measures to be Exhausted
If extraordinary measures are exhausted before policymakers act to increase or suspend the debt limit, the U.S. government will be unable to meet all of its financial obligations shortly thereafter, which include Social Security benefit payments, the salaries of our men and women in the armed forces, and interest payments on the national debt. Because the federal government runs a large cash deficit in February, extraordinary measures will be exhausted much more quickly than they were during the prior debt limit event, when they lasted nearly five months. In particular, the timing and volatility of tax refunds creates significant uncertainty about exactly when the extraordinary measures will be exhausted, but the Bipartisan Policy Center currently projects that the most likely window is between late-February and mid-March of 2014.
- Medicare Physician Payments Scheduled for 24 Percent Cut
The Medicare Sustainable Growth Rate (SGR) is designed to limit the aggregate growth in physician payments to that of the broader economy, but the formula has been suspended for many years (the “doc fix”) because the mandated cut to payments has grown quite large. Absent legislative action, the SGR is set to cut approximately 24 percent from Medicare physician payment rates on March 31, resulting from a three-month extension that was enacted concurrently with the Bipartisan Budget Act.