Between now and Jan. 2, when automatic spending cuts are set to slash up to $54 billion from the Pentagon’s 2013 budget, there is only one date that truly matters: Nov. 6, Election Day.
That is practically the only thing that people watching the U.S. government’s budget battle can agree on.
“Barring an earth-changing event, it’s hard to see any political agreement before the election,” said David Berteau of the Center for Strategic and International Studies.
According to an April 2 report by Credit Suisse, the items that are realistically going to be in play in December are the upper-income Bush tax cuts; the lower payroll tax rates and unemployment benefits; and sequestration cuts.
It is an unlikely scenario, but if the automatic cuts to discretionary spending go forward and all of the Bush tax cuts are allowed to expire, the U.S. Gross Domestic Product (GDP) will take a 4 percent hit, according to the analysis. “Until Congress acts, the economy will still technically be on a collision course with the largest fiscal hit in modern times.”
That could serve as impetus to act. Or, Congress could choose to avert the crisis and kick the can down the road with some kind of temporary fix, “as there won’t be enough time or political will to deal with big changes to policy,” according to the Credit Suisse report.
Todd Harrison, an analyst at the Center for Strategic and Budgetary Assessments (CSBA), said he agrees. “I think the most likely outcome is that the lame-duck Congress punts on the big issues and lets the next Congress deal with it.”