A Budget Deal Takes Shape

Albert R. Hunt is a Bloomberg View columnist. He was the executive editor of Bloomberg News, before which he was a reporter, bureau chief and executive Washington editor at the Wall Street Journal.
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A likely congressional budget deal will be small-bore fiscally, but will have important political implications and benefits for both parties.

Senate Budget Committee Chairman Patty Murray, a Washington Democrat, returned to the capital yesterday and plans to meet today with her House counterpart, Representative Paul Ryan, a Wisconsin Republican. By the end of this week, there could be an agreement that replaces part of the automatic across-the-board spending reductions under the so-called sequestration with a combination of less unpopular spending reductions and increased revenue.

The deal still could fall through this week, both sides say. If so, though, it probably would be patched back together before the deadline, which is the end of next week. Still, there would be unresolved matters, in particular how to avoid a fight over lifting the debt ceiling in February.

The closer they get to the deadline, the more Republicans and Democrats alike appreciate that even a half-baked deal is better than the status quo.

For Republicans, an agreement avoids the possibility of another government showdown, even shutdown, in mid-January; they are still reeling from the debacle in October. And avoiding some of the deep defense cuts, mandated by sequestration, is important to the Republican military hawks.

Party leaders are worried that any new budget battle next month would distract attention from the problems of the Affordable Care Act, which are hurting Democrats.

Democrats are pleased that some of the most painful sequestration cuts in discretionary programs for the poor will be replaced. And, assuming some of the Obamacare difficulties will be eased, party strategists believe they will be able to focus on more advantageous issues such as immigration reform, infrastructure needs or raising the minimum wage.

Any agreement will resolve the temporary budget issue for this fiscal year but, participants say, probably won't deal with the debt ceiling, which has to be raised again in two months. The odd coalition opposed to taking care of the debt ceiling this time includes the right wing of the Republican party, still itching for a fight with President Barack Obama, as well as many Democrats who are counting on the Republicans to overreach again.

The deal likely to be reached avoids any significant long-term changes in the major entitlement programs, such as Social Security and Medicare, or reforms of the tax code. Ryan still is pushing for more Medicare cuts, and Murray wants to close some tax loopholes. Both seem unlikely.

A little less than half of the $120 billion sequestration cuts for the 2014 fiscal year would be replaced; next year, barring congressional action, the sequestration cuts would be even broader effect. The restored reductions would be evenly divided between defense and domestic programs.

Republican leaders are boasting they will avoid any tax increases. There will be fee increases such as higher customs levies and airport charges. Democrats say the deal under discussion establishes an important precedent: Any future budget deals to replace subsequent sequestration cuts would entail higher revenue as well as spending reductions.

The spending level, according to people involved in the talks of the bipartisan House-Senate special committee cobbled together to deal with the unpopular sequestration cuts, will be a compromise, too: about $40 billion higher than the $967 billion for fiscal 2014 adopted by House Republicans, and $50 billion less than the $1.058 trillion adopted by Senate Democrats.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Albert R Hunt at ahunt1@bloomberg.net