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Budget Negotiators Seek Limited Deal as Opposition Mounts

Dec. 6 (Bloomberg) -- Bloomberg chief Washington correspondent Peter Cook reports on budget negotiations on Capitol Hill on Bloomberg Television’s “Market Makers.”

U.S. negotiators will work through the weekend trying to craft a limited deal to ease automatic spending cuts as opposition emerged from targeted groups, including airlines and federal employees.

Democrats are resisting a proposal to increase the amount federal employees contribute to their pensions, while Republicans are challenging the concept of trading spending cuts for promises of future savings. Democrats are also demanding an extension of benefits for long-term unemployment insurance, either as part budget deal or as a separate measure.

In case a budget deal isn’t reached, House lawmakers yesterday began discussing the outline of a short-term bill to fund the government, according to a Republican leadership aide. The bill would probably be for three months, after current authority expires Jan. 15.

Representative Paul Ryan and Senator Patty Murray, the lead negotiators, aren’t finding it any easier to reach a deal by limiting their menu of options, said Representative Chris Van Hollen, the top Democrat on the House Budget Committee.

“Narrowing the options doesn’t always make it easier,” said Van Hollen of Maryland. “You can still have a lot of disagreement over what the remaining options are.”

Negotiators are crafting the deal by “subtraction,” Van Hollen said, citing Republican opposition to ending corporate tax breaks, a proposal Democrats favor, and curbing agricultural subsidies.

Stopgap Spending

The negotiators had sought to reach a deal by today or tomorrow, before House Speaker John Boehner introduces a stopgap spending bill to avoid another government shutdown when funding authority expires.

Instead, lawmakers including Ryan left Washington for the weekend. Ryan, Murray and their staffs “remain in communication with each other,” said Kevin Seifert, a spokesman for Ryan. “They are making progress.”

Aides say Murray, a Washington Democrat, and Ryan, a Wisconsin Republican, may urge the House and Senate to vote directly on their accord, bypassing the bipartisan panel that has a self-imposed Dec. 13 deadline for a plan.

The negotiators have been seeking to boost domestic and defense spending by $65 billion over two years to ease the effects of spending cuts on the Pentagon and programs including scientific and medical research and services for poor children.

Unemployment Aid

Democrats have also demanded that so-called emergency unemployment insurance for 1.3 million Americans, which expires on Dec. 31, be part of any deal. They brought people who stand to lose benefits to the House yesterday to emphasize the point.

“We are making a very clear statement that we cannot, cannot support a budget agreement that does not include unemployment insurance in the budget or as a sidebar,” said House Democratic leader Nancy Pelosi of California.

Boehner said yesterday that he was open to continuing the benefits should a request come from President Barack Obama.

“If the president has a plan for extending unemployment benefits, I’d surely entertain taking a look at it,” Boehner told reporters. “But I would argue the president’s real focus ought to be creating a better environment for our economy and creating more jobs for the American people.”

While some budget aides say a two-year deal is still a goal, a one-year accord may be more in the range of $35 billion.

$1 Trillion

An agreement of that size would be a sliver of the $1 trillion to $4 trillion in savings that negotiators had aimed to identify in three years of failed budget talks. This panel, created in the measure to end the 16-day October government shutdown, started with a goal of replacing automatic spending cuts for two years at a cost of $100 billion to $200 billion.

Even so, any compromise would mark a departure from the gridlock that has prevented bipartisan budget accords since Republicans took control of the House in 2010, creating a divided government. It would raise hopes that lawmakers could use it as a basis for a bigger budget agreement in the future.

Asked if a deal could be reached for a vote next week, Ryan told reporters, “I don’t know, we’re still talking.”

Boehner, at a news conference yesterday, said he’s “hopeful” Ryan and Murray can come up with an agreement that would pass both chambers.

A budget accord under discussion may ease some of the automatic spending cuts for one year instead of two, according to a congressional aide close to the talks who requested anonymity.

‘Really Pathetic’

“This deal is either going to be really pathetic or it’s not going to be a deal,” said Steve Bell, a former Senate budget adviser now with the Bipartisan Policy Center.

The emerging agreement wouldn’t raise the nation’s borrowing limit, another potential fiscal showdown Congress faces early next year.

The menu of options Murray and Ryan are considering include raising the fees paid by airline passengers, or boosting the co-called Sept. 11 security fee on airline tickets. Budget experts estimate adjusting airline fees could generate as much as $11 billion to offset some automatic cuts.

Airlines for America, a Washington-based trade group for carriers including Delta Air Lines Inc. and US Airways Group Inc., greeted travelers and lawmakers returning to Washington airports this week with leaflets and air sickness bags marked: “Are higher taxes on air travel making you ill?”

Other options under consideration include $20 billion in changes to federal retirement programs that would increase worker contributions, and auctioning government-owned airwaves.

Concerned Republicans

A group of 18 House Republicans concerned that negotiators will trade spending cuts set in law for future savings that may not materialize are drafting a letter to Boehner in support of a spending bill of $967 billion.

The group, including Representative Steve Scalise, a Louisiana Republican and chairman of the Republican Study Committee, may also object to using higher fees to offset the cuts. Negotiators had been discussing a deal with a $1 trillion spending cap.

“Are the savings real or is it just old-fashioned Washington smoke and mirrors?” said South Carolina Representative Mick Mulvaney, who organized the letter. “That’s the concern that the overall majority of the Republican Party has.”

House Democrats yesterday held a news conference to complain that their priorities, including ending corporate tax breaks and infrastructure investments, were being left out of the discussions.

Jet Tax

Republican proposals “go after middle-income, middle-class taxpayers and leave the high-fliers alone,” Van Hollen said, citing a focus on increasing airline passenger fees instead of ending a corporate jet tax break.

Democrats have urged negotiators to include a jobs package. “Important priorities are at risk of being left behind,” Van Hollen said.

Ryan has previously shared with Republican lawmakers ideas including increased premiums for pension plans backed by the Pension Benefit Guaranty Corp. and a cut in Medicaid payments to hospitals. Lawmakers including Senator Jeff Sessions of Alabama, the top Republican on the Budget Committee, have floated a proposal to push some spending cuts into future years.

Another option being discussed is giving the U.S. Postal Service flexibility to reduce costs, most notably by ending Saturday mail delivery, according to an aide close to the talks who asked for anonymity because the discussions are private.

Savings from workers’ compensation and retirement for federal employees could be an obstacle, with Republicans pushing for more than $20 billion and Democrats seeking to lower that amount.

The two House Democrats who would round up votes for a compromise, Steny Hoyer, the No. 2 Democrat, and Van Hollen, represent Maryland districts that include many federal workers.

“I vehemently oppose efforts to target and single out these hardworking, middle-class Americans who play a critical role in maintaining the safety, security, and well-being of our nation,” Hoyer said yesterday in a statement.

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net; Derek Wallbank in Washington at dwallbank@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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