January 14, 2013
Credit: Credit: DoD photo by Master Sgt. Ken Hammond, USAF
The financial woes of the U.S. were hardly solved by a deal to extend taxes at the end of 2012. In fact, over the next two months, the U.S. government faces a new confluence of deadlines: a potential default on its debt obligations, across-the-board budget cuts of nearly $1 trillion and a possible government shutdown. The combination of events has even the most seasoned budget planners on their heels.
“I've never seen a period featuring any greater budget uncertainty,” says Pentagon Comptroller Robert Hale, who has worked with U.S. defense dollars since the 1970s. “It gives a whole new meaning to the term 'March Madness,' and I can't wait for it to be over.”
Government and industry planners are looking to navigate the madness as it becomes clear that regardless of sequestration, the Pentagon's investment programs are going to take a hit. The question is the extent to which the cuts will be directed and where they will fall.
In its final days, the 112th Congress averted a so-called fiscal cliff by extending tax cuts and delaying the budget penalty known as sequestration. Now the government has until March 1 to come up with a new agreement. But the Bipartisan Policy Center warns that the U.S. will hit the debt ceiling between Feb. 15 and March 1, putting pressure on lawmakers to reach a deal next month to increase the debt limit and substantially reduce the federal deficit.
The proximity of those two deadlines “implicitly ties” sequestration to the debt-ceiling debate says Todd Harrison, senior budget studies fellow at the Center for Strategic and Budgetary Assessments.
Whether sequestration happens is still a very open question. Answering it involves the ongoing three-way tussle over taxes, entitlements and discretionary spending, the first chapter of which was only partially addressed in an agreement between Vice President Joe Biden and Senate Minority Leader Mitch McConnell (R-Ky.) as 2012 turned into 2013. The delay to sequestration was added to the deal late in the process, Harrison notes.
Analysts and industry officials are fairly divided as to whether lawmakers will succeed in this round of deficit talks.