By Spencer Perlman, WSC President

Congress is scheduled to be in session for only eight (8) weeks between Memorial Day and Labor Day, and it seems likely that there will be no, or very little major or substantive legislative activity to occur during this time frame. The expectation of a quiet summer is due largely to the fact that the nation’s budgetary outlook has improved in relative terms, which has significantly lessened the pressure on policymakers to implement major structural reforms to mandatory spending programs and revenue policies.

The Congressional Budget Office (CBO), Congress’s nonpartisan budget arm, recently lowered its projected budget deficit for federal fiscal year (FY) 2013 to about $600 billion, or about one-half the level of the annual deficits incurred in the last four fiscal years, respectively. This improvement is due largely to two factors: (1) higher than expected tax revenues resulting from stronger corporate profits and the tax rate hikes put into place as part of the Fiscal Cliff deal in January, and (2) reductions in spending as a result of sequestration, which went into place in March and began to impact Medicare reimbursements to providers in April.

With the deficit now expected to be lower than projected, the government can borrow less (or at least at a slower rate) than previously thought necessary, meaning that the Treasury Department will not hit the statutory debt ceiling until several months later than earlier estimates; the debt ceiling is now expected to be breached around October. Lawmakers no longer feel pressure to address the nation’s deficit and debt problems prior to the August break.

In the near-term, Congress is expected to engage in the following activities:

The Chairmen of the two tax-writing committees (Rep. Dave Camp (R-MI) of the House Ways & Means Committee and Sen. Max Baucus (D-MT) of the Senate Finance Committee), are likely to continue their behind-the-scenes discussions about comprehensive tax reform. Mr. Camp is in his final term as Chair and Sen. Baucus is retiring from Congress, so both men feel pressure to put their stamp on the tax code. However, congressional leadership on both sides of the aisle (and the White House) seem unwilling to move forward at this time.

The House and Senate Appropriations Committees are expected to begin marking up FY 2014 spending bills, though it is highly unlikely that the process will move very far. The two chambers have failed to reconcile their differing budget resolutions, meaning that the Republican-controlled House is operating under spending levels for FY 14 that are about $91 billion lower than that of the Democratic-controlled Senate, making it nearly impossible to find compromise on the spending bills. At best, the spending bills for the Departments of Defense, Veterans Affairs, Homeland Security, and Agriculture will move through the appropriations process and the remaining areas of the government will have to be addressed in a stop-gap continuing resolution and/or an omnibus spending bill.

Looking ahead longer term, Congress will need to address the debt ceiling before the end of the year. This likely will occur as part of a large last-second agreement that could include several high profile matters, including (possibly) tax reform and/or Medicare- and health-related items, such as a long-term fix for the physician payment system. Should this occur, such legislation could also serve as a vehicle for other Medicare- and health-related provisions, such as wage index reform.

We will continue to provide updates in the weeks and months ahead.
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