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Stan Collender
Published: Sunday 23 December 2012
But before I get to my predictions for next year, you might be wondering how well my forecast last December about 2012 turned out. Four of my five predictions were spot on, and the fifth still hasn’t been decided. In other words, I may have thrown the pundit’s version of a perfect game.

A Budget Crystal Ball for 2013

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Don’t expect Congress to tackle a tax overhaul anytime soon.

For the third year in a row I am not writing a year-in-review column because, honestly, they’re boring and unnecessary. If you’ve been interested enough in the federal budget to read my column in 2012, you already know what happened and probably don’t want to be reminded. If you didn’t care during the year, you don’t need to know now.

Besides, what’s to come in 2013 is definitely more interesting.

But before I get to my predictions for next year, you might be wondering how well my forecast last December about 2012 turned out. Four of my five predictions were spot on, and the fifth still hasn’t been decided. In other words, I may have thrown the pundit’s version of a perfect game.

The four predictions that have already worked as I expected were that (1) There would be no movement on the federal budget, including no budget resolution in 2012; (2) To the extent there was any big budget fight in 2012, it would be about avoiding the fiscal cliff; (3) The Obama 2013 budget would not specify how the White House would comply with the sequester; and (4) No tax overhaul bill would be enacted.

(Note on No. 2: Federal Reserve Chairman Ben S. Bernanke had not yet coined the phrase “fiscal cliff” when I made last year’s predictions, and I used “sequester” to describe what would happen at the start of 2013. That doesn’t weaken the value of the prediction, although I really wish I had predicted that fiscal cliff would become one of the most hated postelection topics of the year.)

The one prediction whose fate is still unknown is that I told readers not to be shocked if the only thing that happens in a lame-duck session is a deal that both extends the tax cuts and delays the sequester spending cuts until June 30, 2013, or beyond. We should know in a few weeks whether that happens.

Given my stellar record for 2012, I should probably retire now while I’m at the top of my game. Not taking my own advice, here are my fearless budget forecasts for 2013.

  1. A tax overhaul will not be enacted in 2013. I continue to be mystified by those who insist tax changes can be done quickly next year. The 1986 tax overhaul bill took three years to enact, including almost a full year just to draft the transition rules from the old to the new system. Almost three decades later, Congress has become hyperpartisan, and taxes are a much hotter issue. Even more important, the 1986 tax overhaul bill was based on the premise that the bottom line had to be revenue-neutral — that is, that there would be no net increase in revenues. The 2013 (or more likely the 2014) tax overhaul act will have to increase revenues from what they will be under current law. That means that the already grossly complicated politics of tax changes will be complicated even further. No matter what you hear about fast-track procedures, getting a tax overhaul done in 2013 in one-third the time it took to do it in 1986 is almost inconceivable.
  2. No big Medicare, Medicaid or Social Security changes will be enacted in 2013. This one is simple: These programs will not be touched unless a tax overhaul raises revenue compared with current law. No tax changes in 2013 (see No. 1) means that these mandatory spending programs will remain untouched next year as well.
  3. There will be no grand bargain in 2013. This one is even simpler than No. 2. No tax overhaul plus no changes in mandatory spending means that there will be no big budget deal in 2013. Indeed, a tax overhaul that raises revenue, plus mandatory program changes that reduce spending, is the basic definition of a grand bargain.
  4. The federal deficit will not be as big of an issue in 2013. The 2012 election results plus what appears to be newly discovered White House testicular fortitude when it comes to negotiating with congressional Republicans means that the deficit will be less of an issue as the GOP realizes that a deficit reduction effort is far more likely to mean higher taxes. In addition, either the deficit will fall by $600 billion as we go over the cliff and the focus will shift from deficit reduction to getting out of the cliff-induced recession, or we won’t go over the cliff and the economy will grow faster than currently forecast as business and markets rejoice.
  5. CEOs will stop coming to Washington to lobby on the budget. Not only will the CEOs’ immediate concerns about the fiscal cliff and debt ceiling be over but serious questions will be raised about how much value they add to the legislative battle over the budget. There could even be some shareholder backlash against CEOs who spent a great deal of time inside the Beltway focused on the budget if their companies or stock prices do not do as well as expected. That will make it harder for the various groups that thought using CEOs was their ticket to fame and fortune, and they may decide to move on to other issues.

So if what you say is

So if what you say is correct, is this to say that the Bush tax cuts will expire? If so, that would mean that a recession in 2013 would be likely, and that perhaps there will be a greater emphasis on increased public spending -- most notably in public works and infrastructure.

And as a corollary to your predictions, would this mean that the Tea Party faction within the House become more reality based? Or would it remain intransigent, leaving Republican leadership to move in a centrist direction towards a working coalition with centrist Democrats?

It would be a good thing if you could do another post based on the questions that I've raised.

As a retiree, I'd sure like

As a retiree, I'd sure like to be able to bank on your prediction of no cuts to social security. However, I've got NO confidence in this.

Even though social security contributes not a whit to the phony "budget crisis," and even though the media never make this clear, Obama seems hell-bent to use social security as a bargaining chip to get the tax increases necessary to reduce the deficit. No one ever seems to call him on this phoniness.

It will take a complete personality and brain transplant to change Obama from the person desirous of being a "game-changing president," like his hero Reagan, to a human being who listens to anyone outside his inner circle [which includes those CEOs invited to White House dinners].

As long as Obama, and currently most Democrats, inhabit the Crazy Town of the "scary, scary deficit," and don't listen to people like Reich, Krugman, Dean Baker, Stiglitz et al., we're trapped in this modern version of trickle-down economics and "what's good for Goldman Sachs is good for the nation."

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