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By Jeff Hurley

If members of Congress feel déjà vu as they return to the second session of the 113th Congress, it may have something to do with the ongoing need to address the nation’s finances.

 Any previous New Year’s resolution to achieve fiscal order has proven unsuccessful. Similar to Congress addressing the “fiscal cliff” in early 2013, this year welcomes members with a host of new deadlines, or cliffs, where legislative action needs to be taken. Most of the upcoming fiscal targets piggy-back on two recent legislative measures enacted this past fall. In October, federal lawmakers ended a 16-day government shutdown by passing the Continuing Appropriations Act, legislation that provided a short-term continuing resolution and increased the debt ceiling. This past December, Congress reached a budget agreement on spending levels for the next two federal fiscal years. Both of these measures pushed several budget priorities to the new calendar year.

These include: 1) the expiration of the continuing resolution on Jan. 15; 2) the suspension on the statutory debt limit ending on Feb. 7; and 3) a slew of tax provisions, known as “tax extenders,” that expired on Dec. 31, 2013.

FY 2014 Budget

Budget pie chartThe president signed the Bipartisan Budget Act of 2014 on Dec. 26. The bill was spurred by a nonbinding deadline for Congress to find agreement on spending for FY 2014. For states, the biggest takeaway is budget certainty for the next two years. The measure increased discretionary spending levels that had previously been restricted by 2011’s Budget Control Act. For FY 2014, federal spending will rise by $45 billion, from $967 billion to $1.012 trillion. While fully offsetting the spending increases, the Bipartisan Budget Act also provided $23 billion in deficit savings over the next 10 years. Federal savings were achieved by requiring higher retirement contributions from federal employees, changing cost-of-living adjustments for younger military retirees, demanding higher premiums from companies to the Pension Benefit Guaranty Corporation, and adding two more years of sequestration reductions of mandatory programs in 2022 and 2023.

With the current continuing resolution funding the federal government until Jan. 15, Congress must either pass an omnibus appropriations bill to complete funding federal programs through the end of the fiscal year (Sept. 30, 2014), or enact another continuing resolution.  As of this writing, the House and Senate are trying to find agreement on a $1.012 trillion spending package, with the possibility a short-term continuing resolution will be needed to avert another government shutdown.

Debt Limit Debate

 Increasing the statutory debt limit has become an annual endeavor for members of Congress. Over the past 10 years, the debt limit has been raised 11 different times. Last year alone saw the nation’s borrowing capacity raised twice. The most recent increase was part of the Continuing Appropriations Act passed in October, which ended the threat of the federal government defaulting on its debt and suspended the debt limit until Feb. 7. This measure is similar to the No Budget, No Pay Act, legislation enacted in February 201, which did not directly raise the debt limit but rather suspended it for a specified period of time. The debt limit currently stands at $16.7 trillion, but is expected to reach $17.3 trillion by early February. The Department of Treasury will be able to use “extraordinary measures” to allow the federal government to meet its obligations for an extended period of time, although Treasury only expects these measures to last until early March.

The question remains: How will Congress handle raising the debt limit? Some members of Congress are proposing a debt limit increase to be matched with spending reductions or other policy concessions. For example, discretionary spending caps and annual sequestration reductions in the Budget Control Act were implemented to achieve dollar-to-dollar savings equal to the $2.1 trillion debt limit increase. As federal lawmakers are unlikely to reach a consensus on a long-term deficit reduction deal, Congress will need to find a middle-ground between a “clean” debt limit hike and matching deficit savings to a debt limit increase.

Tax Extenders

A host of tax provisions expired at the end of 2013, leaving their long-term survival in doubt. Commonly referred to as “tax extenders,” these 55 provisions amount to a total cost of just under $1 trillion over 10 years, according to the Congressional Budget Office. Each of these provisions was designed to be temporary, to provide a short-term efficiency, equity or simplicity to the federal tax code. These include provisions for school-related expenses, business research and development, energy efficiencies in new homes and production for film and television. For states, the most critical provision is the deduction for state and local sales taxes. In particular, it would affect states that do not have a state income tax. This was eliminated from the federal tax code in 1986 and then reinstated in 2004 on a temporary basis, and has since been extended annually. Congress has hinted they will extend the sales tax deduction and most, if not all, of the other tax extenders in early 2013, with the primary sticking point being if they will be offset.

As for federal tax reform, attempts for substantive changes have repeatedly stalled in spite of the work done by the Senate Finance Committee and the House Ways and Means Committee. Both have engaged in active deliberation, establishing working groups and task forces in hopes of developing a comprehensive proposal to overhaul the nation’s tax code. In recent months, Senate Finance released four discussion drafts, including changes in international taxes, tax administration, cost recovery and accounting and energy tax reform, following similar plans introduced by their House counterpart. Despite these efforts, there doesn’t appear to be an appetite within Congress or the administration for a broad tax deal in 2014. In addition, the chairs of the tax writing committees will no longer hold these positions in the next Congress, with Senator Max Baucus (D-Mont.) nominated as U.S. ambassador to China and Representative Dave Camp (R-Mich.) facing term-limit restrictions on his chairmanship in the House.

Posted in: Federalism
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About the NCSL Blog

This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.

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