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Looking Into My Budget Crystal Ball for 2012

Instead of a dreaded year-in-review column that, as I said last December, is mostly “a snooze,” Fiscal Fitness last year listed seven predictions for what would happen in 2011. I’m going to keep that policy alive this year for three reasons.

First, as anyone who has followed any aspect of the federal budget knows, a postmortem on this year’s debate would be anything but in keeping with the season of “good tidings of great joy” we’re supposed to be in. In fact, it would be downright depressing.

Second, a year-in-review column would also be based on incomplete information given that the current continuing resolution expires Dec. 16 and, as hard as it is to imagine in light of all that has — or, more accurately, hasn’t — happened this year, the biggest budget-related confrontations might still be ahead of us.

Third, a year-in-review column would mean that I have to spend more time discussing the hardly super committee than the subject is worth at this point.

But before I get to my predictions for what’s going to happen next year, how well did I do for this year?

The answer is (note hardy self-congratulatory pat on the back here) not bad at all.

I hit directly on six of my seven predictions.

Saying that “gridlock and stalemate” were going to be the most prevalent aspects of this year’s budget debate, that Bowles-Simpson would have no real effect in 2011 and that there wouldn’t be a fiscal 2012 Congressional budget resolution were all right on the money.

Three of my other predictions — that earmarks would continue but go underground, government contractors would be the 2011 version of bond market vigilantes and that Wall Street would demonstrate a remarkable lack of sophistication when it came to the budget — also were correct.

Recent reports have indicated that (shocking, I know) earmarks continue to be sought by Representatives and Senators but that their efforts are now far less visible than they were before. And anyone who doubts the greatly increased budget activism of the contractor community hasn’t been paying attention to its ongoing efforts to stop the sequester that was triggered when the anything-but-super committee failed to move a bill.

If anything, financial markets demonstrated that they really don’t have a clue when it comes to what Washington will do on the budget. I was especially surprised by the argument I heard from many on the street that Congress would be embarrassed (their word, not mine) if the super committee didn’t agree on a plan and, therefore, that there was a strong likelihood it would succeed.

My one big miss last year was the prediction that the only reduction in the deficit would come from projected improvements in the economy. There were minor — and I am using that word very intentionally — legislated deficit reductions in the full-year continuing resolution enacted in April and in the Budget Control Act. But the biggest reason I was wrong is that the better-than-expected economic forecast (thank you, Europe) I expected to have an effect didn’t materialize.

Now on to what I see ahead in 2012.

1. There will be no movement on the federal budget until after the 2012 elections. Does anyone really think it will be easier in an election year for either political party to agree to a compromise that its base doesn’t want and won’t support than it was this year when it was already virtually impossible? A better question: Why does anyone think that the intractable budget politics of 2011 that led to repeated failures on every budget-related effort will be any different next year? If you have any doubt about what this means for the budget process: No Congressional budget resolution will be adopted in 2012.

2. Don’t be surprised if the sequester and tax cut expiration are delayed for six months or more. The Bush/Obama tax cuts expire Dec. 31, 2012, and the spending cuts triggered by the super-bust committee’s failure are supposed to begin on Jan. 2, 2013. Both will take place before the next Congress begins and the next president is inaugurated. It would hardly be a shock, therefore, if the only thing that happens in a lame-duck session is a deal that both extends the tax cuts and delays the sequester until June 30 or beyond.

3. 2012 will be “The Year of Avoiding the Sequester.” The big budget fight in 2012 will not be the deficit, it will be trying to come up with alternatives to the sequester.

4. President Barack Obama’s fiscal 2013 budget will not specify how the White House plans to comply with the sequester. There’s no legal requirement or political reason for the president to include in his spending plan released early next year the specific domestic and military spending cuts needed to comply with the sequester. It’s far more likely that the budget will include the administration’s plan for avoiding a sequester (see No. 3 above) and say that it will list the reductions later in the year if Congress does not agree with what it’s proposing.

5. There will be no tax reform in 2012. Even if all of the substantive and political work needed to get it done had been completed — and it hasn’t been — a tax “reform” bill that has as many losers who will pay more as winners who will pay less will be all but impossible to enact in an election year.

Stan Collender is a partner at Qorvis Communications and founder of the blog Capital Gains and Games. He is also the author of “The Guide to the Federal Budget.”

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