By Richard Cowan and Tim Reid, Reuters
WASHINGTON–December looms as the deadline for tackling a U.S. fiscal mess punctuated by a US$14.8 trillion national debt. But it’s December 2012, not 2011, that is really worth keeping an eye on. Dec. 23, 2011, is the legal deadline for Congress to approve at least US$1.2 trillion in savings over 10 years to avoid an equal amount of across-the-board spending cuts, as part of a deal reached during debt talks in August. But a series of even more important events will dovetail following the November 2012 presidential election to create what some are calling a “perfect storm” for the nation’s economic affairs. “A whole lot of things happen in late 2012 and early 2013,” said James Horney, a fiscal policy expert with the liberal Center on Budget and Policy Priorities. Looming at the top of the list is the scheduled expiration of sweeping Bush-era tax cuts that in 2001 and 2003 lowered taxes across the board. U.S. President Barack Obama has called for extending these cuts for families earning less than US$250,000 while letting those for the wealthiest lapse. Also by the end of 2012, Congress will have to decide on fixing a glitch in the Alternative Minimum Tax so that middle class Americans are not forced to pay a tax that originally was aimed only at the wealthiest. Taken together, the future of these two tax policies could make for a multi-trillion-dollar swing for the Treasury, either in the way of higher revenues or more rapidly escalating debt. “The real end game is December 2012,” said Richard Gold, a lobbyist at Holland and Knight. “If the Republicans want to keep some or all of the (Bush) tax cuts, they need to cut a deal on deficits. The Bush tax cuts are the real trigger, and that gives Democrats the leverage here.” But that’s not all. By the end of 2012, Congress and Obama likely will need to increase the government’s borrowing authority. A battle over the U.S. credit limit nearly led to a government default on its debt in August. Republicans used the debt limit increase as leverage to win US$917 billion in spending cuts over 10 years. The Nov. 6, 2012, elections, when the United States will elect a president, all members of the House of Representatives and one-third of the Senate, are a big wild card, with the outcome likely to influence the outgoing Congress. It will sit until the new Congress is sworn in the following January. “At that point,” said Horney, the United States might “be in a better situation (than this year) to get some kind of an agreement” on fiscal matters. Super Committee Remains Uncertain
The deficit-reduction “super committee” of Congress is now struggling to find just the right balance of spending cuts and tax increases to achieve US$1.2 trillion in savings.