Budget & Taxes

Another Fiscal Showdown on the Horizon

Treasury Secretary Jacob Lew sounded the fiscal alarm bell Wednesday, warning lawmakers that the government could default on its debt obligations as soon as February.

New York Times: “In a letter to Speaker John A. Boehner and the other top three congressional leaders, Mr. Lew said a surge of February spending, mainly tax refunds for 2013, would leave the Treasury with little room to maneuver after the official debt limit is reached on Feb. 7.”

“But aides signaled they would need some face-saving measure to placate House conservatives who still want to force concessions from the White House, possibly on controlling the growth of entitlement programs like Medicare or easing the path to an overhaul of the tax code.”

“President Obama continues to say he will not negotiate over the debt limit, which he said is a congressional responsibility, not a bargaining chip.”

Spending BIll Highlights

Ed O’Keefe sifts through the details of the Senate’s $1.1 trillion omnibus spending bill to determine winners and losers. Highlights:

Abortion: The bill once again bans the use of federal funding to perform most abortions.

ACA: The agreement doesn’t provide any new funding to implement the health-care law and maintains current funding levels at the Centers for Medicare and Medicaid Services.

Airport Security: The Department of Homeland Security will take a $336 million cut in funding, with most of the reductions at the Transportation Security Administration.

Disaster Funding: $6.55 billion for the Disaster Relief Fund used by FEMA to provide assistance to affected individuals and city and state governments.

EPA: Democrats successfully blocked attempts by Republicans to block the agency from regulating greenhouse gas emissions and to repeal new clean water regulations.

Guns and Ammo: There’s language prohibiting various import and export criteria related to firearms; restrictions on “Fast and Furious” gun-running programs; Democrats also stopped Republicans from blocking gun sellers from reporting multiple sales of rifles or shotguns to the same person; and more funding fro National Instant Criminal Background Checks.

Head Start: $8.6 billion allotted for the program, a $1.025 billion increase.

Immigration: $2.8 billion for detention programs operated by Immigration and Customs Enforcement. Democrats successfully blocked GOP attempts to prohibit the Justice Department from using federal funds to mount legal challenges to state immigration laws.

Military Pay: 1% pay increase.

The Weather: $5.3 billion for the National Oceanic and Atmospheric Administration.

For personal sifting, see CQ Roll Call’s handy All Things Omnibus: 2014 that includes all coverage on the spending bill.

U.S. Could Face Debt Crisis in Late February

Treasury Secretary Jacob Lew told Congress “the government could face a debt crisis as soon as late February or early March if steps aren’t taken to suspend or increase the debt ceiling, warning that the government will have much less flexibility to continuing paying bills than in past years,” the Wall Street Journal reports.

“Congress in October voted to suspend the government’s borrowing limit until Feb. 7. After that time, Mr. Lew can use emergency measures, such as suspending payments to certain pensions, to allow the government to continue borrowing money temporarily.”

“Those steps will run out quickly this time… compared with a several-month period in the prior debt ceiling standoff. That is in part because of all the tax refunds the government pays out in February and March.”

Tapering Benefits Overshadowed by Congressional Missteps

Ezra Klein and Evan Soltas write that Ben Bernanke’s moment to shine will be overshadowed by inept Congressional decision-making:

“Congress is wrapping up Ben Bernanke’s term as Fed chair with a move in the wrong direction. The Fed’s lower rates are supposed to allow Congress to borrow more money right now to help the unemployed. Instead, Congress is letting unemployment benefits lapse at the end of this month. Ben Bernanke can lead a horse to water. But he can’t make them stop screwing the unemployed.”

“Since basically 2010 Federal Reserve policy has been getting more stimulative even as Congress has become a larger and larger drag on the economy.”

As Bernanke has warned: “monetary policy does not have the capacity to fully offset an economic headwind of this magnitude.”

A Hollow Budget Deal

Greg Sargent argues that Congress has circumvented how to tackle major policy challenges with its budget accord:

“If there’s one fact that continues to sum up this Congress, it’s this. Lawmakers remain far more likely to vote on a political, counter-productive measure on Iran than to vote on extending unemployment benefits for over one million Americans. And let’s not even talk about whether Congress will vote on any serious proposals to boost economic growth and create jobs amid a still sluggish recovery.”

“It may well be unprecedented for Congress to let benefits lapse with long term unemployment this high, and even though failure on this front will impact over one million Americans.”

Failure to Extend Unemployment Benefits Could Cost $26 BIllion

Bloomberg reports that “unemployment benefits for 1.3 million people in the U.S. are poised to end Dec. 28 as Democrats failed in their last-ditch effort to extend the jobless assistance before the House adjourns tomorrow.”

“Extending the benefits would cost $26 billion over two years, according to the Congressional Budget Office.”

“The failure of Congress to agree could put a dent in the nation’s economy. The CBO estimates that extending the program would boost growth by 0.2 percent and add about 200,000 jobs.”

Commented Chad Stone, chief economist for the Center on Budget and Policy Priorities: ‘This means real hardship for real people — but it’s also bad for the economy.’”

House Passes Budget But No Farm Bill

With a vote of 332 to 94, the House passed a budget deal on Thursday.

The New York Times: “The budget deal would reverse many of the across-the-board sequestration cuts that were set to deepen next month. Spending on military and domestic programs would rise to $1.012 trillion from the $967 billion expected this fiscal year, then inch up to $1.014 trillion in the fiscal year that begins in October.”

“But an agreement remained elusive on the farm bill, the subject of continuing disagreements between Republicans and Democrats over spending for food stamps and expanding crop insurance for farmers, among other issues. All the House could pass on Thursday was a simple one-month extension of the current law.”

“The deal does not address the statutory debt limit, which … would have to be lifted by March for the government to avoid a devastating default.”

Chart of the Day

How the Budget Deal Covers the Cost of Sequestration Relief

Screen Shot 2013-12-11 at 3.37.01 PM

National Journal: “The newly unveiled bipartisan budget deal provides $63 billion in relief from sequestration over two years. That’s a decent chunk of money, and it has to come from somewhere… In announcing the deal Tuesday night, Rep. Paul Ryan and Sen. Patty Murray were careful to say that they wouldn’t be raising any new tax revenue in the deal. Doing so would’ve been a political deal-breaker. So they had to get creative.”

US-Mexico Deepwater Drilling Included in Budget Deal

“Deepwater oil and gas exploration would be allowed to proceed in parts of the western Gulf of Mexico as part of a budget compromise announced [Tuesday],” reports Bloomberg.

“The measure in the budget deal would also lay out a process for submitting future transboundary hydrocarbon agreements to Congress. It has taken more than a year to finalize the U.S.- Mexico deal because it got caught up in a dispute over” a Dodd-Frank mandate to disclose payments from foreign governments.

The Dodd-Frank waiver that had been included in the House-approved bill was dropped from the final budget deal “as a way to expedite the U.S.-Mexico agreement.”

“The bilateral agreement would remove a moratorium on 1.5 million acres of the western Gulf that has attracted interest from major oil companies.”

Does Budget Deal Signal a More Productive Congress?

Sarah Binder questions whether the budget deal signals “a return to ‘regular order,’ if not a more productive Congress ahead.”

“Tuesday’s deal is a far cry from normal budgeting.  [Rep. Paul] Ryan (R-Wis) and [Sen. Patty] Murphy (D-Wash) are unlikely to put the deal to the conference committee, given how little time remains for Congress to act.”

“The appropriations process remains badly fractured [and] Congress will make its spending decisions through an omnibus bill that offers lawmakers a take-it-or-leave-it deal.”

“The mini-deal is emblematic of legislative battles in polarized times: Parties come to the table only when the costs of blocking an agreement are too great to shoulder.”

Binder concludes that the current deal is a solution to avoiding catastrophe but not representative of substantive, bi-partisan deal-making:

“So long as lawmakers prefer dividing the pie (splitting differences) to enlarging the pie (crafting “win-win” deals that capitalize on the parties’ divergent priorities), only small potatoes will roast.”

Lawmakers Reach Budget Deal

House and Senate budget negotiators announced a budget deal on Tuesday “that would call for about $1 trillion in federal spending in 2014,” reports The Hill.

“The deal replaces $63 billion in sequester cuts over two years and trims an additional $23 billion in long-term deficits [but] falls far short of the grand budget bargain Speaker John Boehner (R-Ohio) and President Obama once envisioned.”

Highlights of the deal:

  • A compromise on pension cuts: Instead of $20 billion in federal pension cuts, it now contains $6 billion for federal employees and $6 billion for military retirees.
  • Higher aviation fees
  • $28 billion in savings from the extension of sequester cuts to Medicare for two years.
  • Several energy provisions, including one that could facilitate significant oil and gas drilling revenue from the Gulf of Mexico.
  • No outcome on the extension of unemployment insurance.
  • It does not contain an increase in the debt ceiling.

“While the agreement was modest in scope, the image of a conservative Republican standing next to a liberal Democrat to announce a compromise carried more significance, at least symbolically, than the specifics of the deal.”

 

The 'Grand Bargain' is Dead

Ezra Klein and Evan Soltas announce that the upcoming budget deal “is a signal that the age of grand bargains is over.”

“It doesn’t put the nation’s finances on a vastly different path (or even any different path). It doesn’t reform the tax code or overhaul Medicare. It doesn’t include infrastructure spending or chained-CPI. It doesn’t even replace all of sequestration.”

On the positive side, the deal incorporates small changes and “is the work of human hands rather than automatic cuts … And it would be a small but real boost to the economy.”

“What we don’t know is if the age of mini-deals has yet begun.”

Congressional Budget Deal Little More Than a Cease-Fire

The Washington Post reports that “the first successful budget accord since 2011 … amounts to little more than a cease-fire.”

“Senior aides familiar with the talks say the emerging agreement aims to partially repeal the sequester and raise agency spending to roughly $1.015 trillion in fiscal 2014 and 2015. That would bring agency budgets up to the target already in place for fiscal 2016.”

“Despite his own ambitious blueprint for shrinking spending, [House Budget Committee Chairman Paul Ryan (R-Wis)] said he would not attempt a big deal, because it would require a ‘grand bargain’ in which Democrats agree to cut safety-net spending in exchange for Republican concessions on taxes.”

“But the deal would do nothing to trim the debt, which is now larger, as a percentage of the economy, than at any point in U.S. history except during World War II.”

“Where would that leave the nation’s financial outlook? Not in a particularly good place, budget analysts say … Annual deficits would start growing again in 2016 as the baby-boom generation moves inexorably into retirement. And the debt would again soar.”