2010, Not 2009, Will Be the Next Year of the Budget

Posted May 19, 2008 at 3:14pm

Even with the new president and Congress next year, it’s hard to see how the budget will be much of an issue in 2009.

[IMGCAP(1)]It will be difficult logistically because of the calendar. By the time Congress and the president are sworn in, fiscal 2009 will be almost four months old. Even if the new administration moves with unusual speed, it likely won’t get its proposed changes for fiscal 2009 and its fiscal 2010 budget to Congress for six weeks or so.

That will make significant changes in the 2009 budget outlook close to impossible because, at the earliest, the fiscal year will be more than half over by the time anything is enacted. Then, as the Treasury has amply demonstrated this year, getting a department or agency to carry out a large change in policy –– like sending out stimulus checks –– typically takes months rather than days.

Spending cuts will be at least as difficult as tax cuts. Making large reductions halfway or more through the year seriously limits the ways savings can be achieved. In fact, in most cases it limits the choices to rapid personnel reductions that are always hard to do.

Making the budget an issue in 2009 will also be difficult because of the economy. No matter how you want to refer to it (a recession, downturn, slowdown, etc.), it’s not at all certain the problem will be over by the time the new president and Congress officially assume their responsibilities.

Some expectations are that we won’t know until June or July that, if it’s happening at all, a recovery is under way and the housing market has stabilized. Even if it is over, the economic recovery, pickup, newfound strength, or whatever is likely to be considered too uncertain and fragile to allow budget policymakers to have the full range of options on the budget.

All of this indicates that, unless the economy needs an additional fiscal policy booster shot, the budget activity next year mostly will be focused on maintenance rather than significant progress. Meeting deadlines, getting as many appropriations as possible done by the start of the fiscal year, holding hearings, doing oversight on what happened the previous eight years, and yet another one-year fix for the alternative minimum tax will be the major activities.

By contrast, barring a major foreign policy or military issue or an additional economic meltdown, the budget is likely to be the big political battleground in 2010.

The most obvious reason is that the tax changes enacted in 2001 and 2003 will expire at the end of 2010. Some of the provisions may not be extended. Others will be revised in a different form. But a tax bill will be considered and that will put other changes, like a permanent fix for the AMT, in play.

That will virtually guarantee the federal budget will be big news that year. Compared to current forecasts, permanently extending the 2001 and 2003 tax cuts and indexing the AMT will reduce federal revenues by $2 trillion to $3 trillion over the next 10 years. The effect of those changes on the federal deficit and the national debt will be impossible to ignore and will be virtually certain to be considered as they are debated. So will the question of whether and how these reductions in revenues should be offset.

The fact that this will be happening in an election year will make the debate that much more politically important and difficult.

But it will also be happening the year after no significant budget initiatives likely will have been considered and when the economy will seem to be back on track. That will make it important that some progress, or something that looks and sounds like progress, be put in place.

That will make 2010 exactly the time when the next big federal budget process change could be adopted. Indeed, if the past is any indication, it is exactly when a major budget process revision is likely to be considered.

This especially will be the case in 2010 if the few actual changes in the budget outlook adopted in 2009 are accompanied by at least some discussion about what needs to happen in the future to prevent the situation from getting worse. If a consensus develops on Capitol Hill over this period about some aspect as the federal budget debate like the national debt and deficit, if the majority sees a need to appease its more fiscally conservative members, if the Blue Dogs assert increasing strength within the Democratic Caucus, if Wall Street demands that federal borrowing be eased, and if a newly growing economy makes its possible for policymakers to talk about the future, a budget process revision may be needed to demonstrate that something is happening.

It is, of course, possible that the new president will make the budget such a high priority that she or he will force the issue to the forefront in 2009. It’s also possible that a coalition of Blue Dog Democrats and fiscally conservative Republicans will join together to force attention to the budget faster than now seems likely.

But the time constraints facing the new administration and Congress and concerns about the economy will easily trump these factors and limit their effects to marginal changes in 2009 and promises about what will be done the next year. That will make the expectations about 2010 larger and the budget stakes even higher.

Stan Collender is managing director at Qorvis Communications and author of “The Guide to the Federal Budget.” His blog is Capital Gains and Games.