The current budget debate on Capitol Hill is being shaped by several events in the next few months including raising the debt ceiling, the debate on sequestration, and the expiration of a continuing resolution to fund the government.
A March 1, 2013 deadline is set for action on $1.2 trillion in automatic spending cuts that made up the sequestration component of the 2011 budget agreement. The passage of the American Taxpayer Relief Act of 2012 delayed this sequestration for two months.
A continuing resolution signed last fall to fund government operations will also expire March 27, 2013. Congress will then be faced with a vote to fund the government or risk a shutdown.
The $16.4 trillon debt ceiling limits what the Treasury can borrow to fund the government. If the debt ceiling is not raised and there is not enough revenue to cover expenses, the government may choose to not fund or to delay funding programs and operations. This could result in a default.
After Treasury Secretary Geithner warned Congress this year that the government would surpass the debt ceiling between mid-February and early March, Congress recently approved a temporary suspension of the debt ceiling until May 19, 2013. At that time, the debt ceiling would have to be reset.
As Congress works to rein in spending and increase revenues, tax reform will be part of the debate and probably the solutions. Many tax-preference items are already under scrutiny. Financial advisors will want to monitor policy changes closely as many clients may be seeking planning strategies to avoid any negative impact as the tax landscape evolves.