Bloomberg News

Congress May Delay Automatic Budget Cuts

June 26, 2012

Congress Said to Delay Automatic Budget Cuts Until March

U.S. Marines from 1st Battalion 7th Marines Regiment after holding a shura meeting with local residents and police at PB Fulod in Sangin on June 12, 2012. Photographer: Adek Berry/AFP/Getty Images

Republican and Democratic congressional leaders are weighing whether to delay automatic federal spending cuts until March 2013, according to a House aide and industry officials who were briefed on the discussions.

The $1.2 trillion in automatic spending cuts over a decade, half of which would affect the Defense Department, are scheduled to begin in January 2013. At the same time, lawmakers must decide what to do about income tax cuts and other tax breaks scheduled to expire at the end of the year.

Leaders in both chambers are discussing whether to propose a catch-all bill that would delay the automatic cuts, fund the government through March or later and temporarily extend the George W. Bush-era tax cuts and other tax laws, said the House aide and industry officials, who asked to speak on condition of anonymity.

“It is being seriously considered as one of the options and there is no doubt about that,” Steve Bell, the senior director of the Economic Policy Project at the Bipartisan Policy Center, said in an interview.

The measure would follow a short-term stopgap spending bill to keep the government operating after the start of the new fiscal year on Oct. 1, the people said.

Automatic Cuts

The automatic spending cuts are required by the 2011 agreement to raise the U.S. debt limit. The cuts were designed to require Congress to find other deficit-reduction proposals to replace them. Lawmakers so far haven’t agreed on such a plan.

The second measure funding the government until March or later would include the delay of the automatic spending cuts, according to the congressional aide and industry officials, who said they weren’t authorized to describe the option publicly.

Senator John Cornyn, the Texas Republican who leads the National Republican Senatorial Committee, said today he’s aware of discussions to put off so-called fiscal-cliff issues until March.

“It’s a matter of triage right now, trying to keep the patient alive,” Cornyn said when asked whether he sees Congress passing stopgap measures. He said while he favors extending tax cuts until March, he would prefer addressing the automatic spending cuts this year.

“Sometimes Congress acts when there are no alternatives,” Cornyn said of the automatic cuts. “I would be reluctant to leave aside all the incentives to reach decisions sooner rather than later.”

The Republican-led House passed a bill in May to avert defense spending cuts and plans to vote in July on a measure to extend the expiring tax cuts. Neither measure will advance in the Democratic-controlled Senate. President Barack Obama opposes both proposals.

‘Fiscal Cliff’

“The House has acted to replace the defense sequester, which President Obama’s own administration says would be a disaster for our national security, with sensible spending cuts,” Michael Steel, a spokesman for House Speaker John Boehner, said in an e-mailed statement. “Next month, we will vote to stop the largest tax hike in history. The bottom line: We’re leading on the big issues that make up the fiscal cliff -- and the Democrats who run Washington are hiding.”

A short-term extension of expiring tax rates would add complications for an already strained Internal Revenue Service, said Mary Burke Baker, a government affairs adviser at K&L Gates LLP in Washington.

“It complicates the programming IRS has to do,” said Baker, a former IRS employee and congressional aide. “It’s increased cost, both for the IRS and for taxpayers.”

Short-term Action

Any short-term action would be more of a problem if it also occurs late in the year. In 2010, when Congress didn’t enact tax-cut extensions until mid-December, the IRS delayed for several weeks the start of the filing season for taxpayers claiming itemized deductions.

The outcome of the November election will help determine what action Congress may take to avert the automatic budget and tax changes. The stack of tax-and-spending issues creates the potential for a deal on fiscal policy, a partisan standoff or a congressional deal that staves off an immediate crisis by setting up another one in the future.

To contact the reporter on this story: Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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