White House, Agencies Can Manage Effects of Automatic Spending Cuts in Early 2013

-For Immediate Release-
November 2, 2012

Contact: Brian Gumm, (202) 683-4812, bgumm@ombwatch.org

White House, Agencies Can Manage Effects of
Automatic Spending Cuts in Early 2013

New OMB Watch Analysis Highlights Tools Available to Lessen Impacts of Sequestration in First Weeks of New Year

WASHINGTON, Nov. 2, 2012—A new analysis by OMB Watch released today outlines the remedies available to minimize the effects of automatic spending cuts that will go into effect if the budget impasse in Congress continues into 2013. The White House and executive branch agencies have multiple tools to temporarily postpone most of the impacts of the automatic cuts scheduled to take place on Jan. 2, 2013, if budget talks during the lame-duck session break down.

Four factors make a lame-duck budget deal unlikely. The sharply divided, highly partisan character of the current Congress, coupled with a hotly contested presidential election, undermines the desire for compromise. Congressional leadership elections scheduled for January 2013 will make ambitious leaders in each party unwilling to appear to be working with the opposition party. Congress has a limited number of working days in which to find a compromise between the election and Jan. 2. And finally, many new members of Congress fear that the pledge they made to never raise taxes will come back to haunt them if they agree to a budget deal that includes tax increases before the end of the year. However, with no deal, taxes will return to Clinton-era levels on Jan. 2, and every budget deal proposed after that date will inevitably involve a vote for tax cuts for middle-class Americans. This changes the political calculus dramatically.

"Those legislators who took the 'no new taxes' pledge may not be able to have a rational conversation about the budget until 2013," said Katherine McFate, President and CEO of OMB Watch. "If we can't get a deal until the new year, there are a number of ways to minimize the immediate impacts of automatic spending cuts while a responsible budget agreement is negotiated."

In Mitigating the Impact of a Temporary Sequester, Patrick Lester, Director of Fiscal Policy at OMB Watch, argues that taking an extra month to reach a balanced deal – one that includes revenues, spending cuts, and investments – will not create an immediate crisis, even if sequestration takes effect. The executive branch has a variety of tools to deal with the cuts on a short-term, temporary basis. These include controlling the rate of federal spending during the first few weeks of the year, delaying the announcement of new federal contracts and grants until later in the year, redirecting funds to more urgent activities early in the year, and using spending options to prevent agency layoffs.

"Advocates and citizens should urge the White House and agencies to use the tools at their disposal to minimize the impacts of the automatic cuts required by the Budget Control Act until a budget compromise is found," said Lester. "In poll after poll, the American people have said they want to see taxes on the wealthy increased. Allowing the Bush tax cuts to expire may be the only way to achieve that. Then the president and Congress will have several weeks to negotiate a constructive budget agreement – one that raises the revenue required to keep the recovery going, supports critical public programs, and reduces the debt over time."

The full text of the analysis, as well as a two-page summary sheet, is available at http://www.ombwatch.org/mitigating-impact-of-automatic-spending-cuts.

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