» Budget Update: Fiscal Policy May Get Very Messy After Labor Day Decision Economics

Budget Update: Fiscal Policy May Get Very Messy After Labor Day

Posted August 16, 2012 by rvillareal

  • The Obama administration will be forced to spell out cuts to meet the 10-year budgetary sequester in early September. The CBO estimates that $110B would be cut annually with reductions in defense discretionary, nondefense discretionary, and entitlement outlays.
  • This “cut list” will make headlines during a political election year and could lead to layoff notices posted by the firms affected by the sequester.  In this case, workers might be notified on November 1, just days before the election.
  • Even if the Fiscal Cliff becomes a Fiscal Slope, the spending consolidation will likely shave 1% to 1 ½% off growth in 2013. However, there does appear to be some bargaining room as both parties favor tax reform and lower corporate tax rates, while Obama and much of Congress want to eliminate the automatic sequester.
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