What New Year?

Feb. 19, 2013

For many people, New Year’s Day marks a “new beginning” and a chance to rest and relax, watch some football and plot out their moves to making the next year a successful one. This was not the case for me this year. It started early with my daughter’s interest in waking up every few hours (if you need investment advice in 2013, go heavy on Pampers; the Melchi household is a one-family dividend maker), pivoted to an outage that left me unable to watch a single bowl game and finished with waiting until after 10 p.m. for the fine folks in Washington to hold a vote on the tax provisions of the “fiscal cliff.”

On the morning of Jan. 2, I was able to wake up in a manner that I am more accustomed to (alarm clock), in a fully powered house and ready to start 2013 in style. Unfortunately, it doesn’t appear that our leaders in Washington got the message about a New Year and new beginnings, as political posturing, sparring and spinning had already begun for the looming debt ceiling and spending fight that will take place in March. This will undoubtedly unleash a management/legislation by crisis climate, which has become as much a part of Washington culture as the Redskins and traffic jams.

For those of you at home who thought that by averting the fiscal cliff, we would take a brief pause from the high-stakes poker inside the Beltway, you are as mistaken as my (unnamed) friend who thought a gym membership for his wife would be a good Christmas present. In 2013, what’s old again is new, and we are set for another battle, this time with potential long-term impacts far greater than those that we just stared down in the fiscal cliff saga.

So what exactly will our leaders be haggling over in March?

Debt Ceiling. Yet another increase of the debt ceiling will be required in March, bringing a showdown that put Washington on edge in the summer of 2011. President Barack Obama has signaled he would like a “clean hike” of the debt limit but may be willing to negotiate on spending cuts as long as tax increases are part of the deal. House Republicans have signaled that they will only raise the debt ceiling $1 for every $1 reduction in future spending.

Sequestration. In the summer 2011 debt deal, an agreement was reached that if significant reforms could not be achieved, automatic cuts to both domestic and defense spending would begin to take place in 2013. However, even though neither side reached the large deal that was the aim of negotiators, Congress and President Obama elected to delay sequestration for two months in an attempt to offset the cuts in alternative manners.

Tax Reform. While the fiscal cliff deal gave certainty to the individual tax code, many feel the code is still too burdensome. For them, Congress should reform the tax code, including the corporate tax code, by simplifying and limiting deductions while simultaneously lowering rates and raising revenues. There are draft plans out there from both parties on how to make this happen, but if the most recent tax debate is any indicator, such a deal will be hard to attain. It is worth noting for distributors who utilize LIFO inventory accounting that the LIFO may be at risk in certain tax reform discussions.

Entitlement Reform. Many had characterized tax rates as the Republicans’ sacred cow in the fiscal cliff discussions. If the Democratic Party has a similar icon, it is entitlement reform. Spending on Medicare, Social Security and Medicaid are the main drivers of our long-term debt, Republicans will argue, and the programs need alternatives if we are going to “save” it. Democrats have resisted such changes, even as President Obama floated small changes to Social Security inflationary increases.

My early 2013 prediction? House Republicans, feeling much pressure after the fiscal cliff deal, draw a hard line on raising the debt ceiling unless significant cuts and entitlement reforms are enacted, a move the Senate and President Obama will reject, and the standoff escalates to a potential government shutdown over spending with continued speculation over the U.S. credit rating, causing market fluctuations.

It may be a new year, but early indications are to prepare for the same old thing in Washington.

Jon Melchi is HARDI’s government affairs manager. Contact him at 614/345-HEAT (4328) or [email protected].