December 27, 2012
The Senate reconvenes today and will make a last attempt to legislate before large automatic tax increases and spending cuts take effect on January 1st. The House is scheduled to meet only in a pro forma session after Republican leaders said the Senate would need to act first to produce a legislative solution after their own “Plan B” effort fell apart last week. House GOP leaders have promised to give members 48-hours notice before calling them back to the Capitol. As of this morning, that notice has not yet been given and the “fiscal cliff” countdown clock continues to wind down.
Most congressional leaders have signaled a strong desire to pass some sort of fiscal package before New Year’s Day. However, what sort of legislation could move quickly through the Republican House and Democratic Senate remains uncertain. President Obama is pushing for a less ambitious package that extends tax cuts on household income below $250,000, continues unemployment benefits, and delays the across-the-board spending reductions or sequestration. There is still time to get this done if the Senate can act quickly.
Another wrinkle appeared yesterday when Treasury Secretary Timothy Geithner sent an open letter to Congress noting that the national debt limit would be hit on December 31st. While the letter indicated that the Treasury could pursue “extraordinary measures” to postpone the impact of reaching the limit, it also cited the looming fiscal cliff for some uncertainty, saying “Given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures.”
Finally, the White House issued guidance last week to federal agencies on how to handle sequestration if Congress fails to act by the end-of-year deadline. This is significant as it signaled a decision on the White House’s part to publicly prepare for sequestration, which they have avoided doing in the past. Of note in the guidance is that the implementation of sequestration would not result in a government shutdown, but rather a gradual reduction in spending that would begin to be felt in the early months of 2013 if a solution is not identified shortly after the New Year.
Everything is still very uncertain at this point. We will continue to monitor the situation closely and report as new information becomes available.