Earlier today, I participated in a conference call with Senator Jeff Sessions (R-AL), ranking member of the Senate Budget Committee, to discuss a wide range of issues relating to spending at the federal level. The new agriculture bill will shortly hit the floor, which has already drawn praise and fire over changes to subsidy programs. Sessions reminded the journalists on the call that the bill mainly consists of nutrition programs, which comprise about 80% of the overall cost of the bill, including food-stamp programs that continue to grow.
During the Q&A period after Sesssions’ opening statement, I asked about Taxmageddon and whether an early resolution might be on the horizon. Sessions had already confirmed that Democrats have taken action to break last year’s Budget Control Act to get more spending into the budget (about $14 billion), and that the sequestrations inordinately impact the Pentagon (nearly $1 trillion in two phases of cuts over 10 years) while leaving Medicaid, Social Security, and the food-stamp entitlement programs alone, even though the long-term issues with the budget come from entitlement spending rather than defense. Sessions said he’d much rather see a solution “sooner rather than later,” in order to give businesses the certainty they need for investment decisions. Based on President Obama’s own statements, Sessions told us, “we’re not talking about a major disagreement” on tax rates anyway.
However, Sessions also said that he had “no confidence” that Congress would resolve the issue quickly, based on his discussions on Capitol Hill. Instead, we are probably going to see a bill dropped in the post-election session of Congress, “written in secret” and rushed to the floors of the House and Senate, under extraordinary pressure “to avoid economic disaster.” Even Bill Clinton understood the necessity of extending the tax rates, Session argued, and lamented that Congress would follow its usual pattern of waiting until “late December” to get the job done.
If that’s true, then we can expect to see investors to express “no confidence” in the American economy. Without knowing what the tax policy next year will be, they will simply find other uses for their capital, and we’ll end up with the same stagnation we’re already experiencing all the way to winter — or perhaps worse.