Here's what's at stake:
- a 2011 federal budget for the fiscal year ending Sept. 30;
- the 2012 federal budget for the fiscal year beginning Oct. 1; and
- a cap on the national debt that prevents the Treasury Department from borrowing any funds once the $14.2 trillion limit has been hit -- sometime between May and July.
The stakes are huge, from new taxes and cuts in weapons programs and overseas military operations to chaos in global financial markets. For Americans age 50 and older, the stakes are profound. Central to the budget-balancing conversations are the growing costs of older Americans as reflected in the growing costs of Social Security, Medicare and Medicaid. This timeline highlights key decision points in a crucial year for federal finances.
The 2011 Budget
The 2012 Budget
Obama's Defict Reduction Plan
The United States hit the $14.29 trillion debt-ceiling limit in mid-May, but the Administration has employed extraordinary steps and found available cash that extends until early August the deadline for raising the cap. At that point, the government can no longer borrow money. It faces the prospect of actually defaulting on outstanding loans, an event that would have devastating economic implications for the United States and world economies.
House Republicans say they won't raise the debt ceiling without major spending concessions. White House spokesman Jay Carney, while defending Obama's Senate vote against raising the limit in 2006 as a token vote, said a failure by Congress to act on the debt ceiling would be an "Armageddon-like" moment for the economy.
How It Affects You: Consequences of a default would be significant, starting with a wild fluctuation in interest rates, which would affect retirement holdings. It's also possible that the debt-ceiling debate could prompt a larger negotiation about future spending and tax levels.
The battle on federal spending could hit a major impasse as Congress wrestles with appropriations bills for 2012 and the clock counts down to the beginning of the new fiscal year. Congress likely will be tied in knots about spending cuts, including the radical Medicare and Medicaid proposals. Don't be surprised by the inability of Democrats, Republicans and the White House to reach a compromise.
How It Affects You: You won't feel anything yet, but programs and taxes important to you could feel the squeeze starting Oct. 1.
If the past is any lesson, it's unlikely that there will be a 2012 budget by this deadline, and the federal government either will be run on a stopgap spending measure or shutdown until Congress resolves its spending disputes.
How It Affects You: Taxes, tax loopholes and spending cuts in critical programs could take effect in the new fiscal year. While big changes in Social Security and Medicare aren't likely, a range of cuts in programs such as emergency heating, job retraining and unemployment benefits are possible.
The budget battle promises to have a major effect on the 2012 presidential race, raising questions about the role of government in entitlement programs and the debate about whether established programs such as Medicare, Medicaid and Social Security should be dramatically overhauled for future beneficiaries.
Judi Hasson is a veteran Washington reporter.