The 16-day government shutdown of 2013 is over. Now begins the next challenge: bridging the chasm between congressional Republicans and Democrats, and forging a budget deal in time to avoid another shutdown.
Budget leaders of both parties met first thing Thursday over breakfast, in part because they have no time to lose. The agreement reached Wednesday to end the partial shutdown of the federal government and lift the debt ceiling calls for a budget conference report by Dec. 13, including a plan for tax and spending policies over the next 10 years.
By Dec. 13, both houses of Congress will have just over a month to finalize a budget that covers the rest of fiscal year 2014, which started on Oct. 1. Stopgap funding to keep the government open expires Jan. 15. And the debt ceiling has been lifted until Feb. 7, though with “extraordinary measures” that extend the threat of default well into the spring.
President Obama issued a stern warning Thursday to Capitol Hill – and implicitly, to Republicans – to get its act together.
“To all my friends in Congress, understand that how business is done in this town has to change,” Mr. Obama said in a statement from the State Dining Room of the White House.
The Democratic-controlled Senate and Republican-controlled House long ago passed separate budgets for FY2014, but their differences are deep – so deep that they couldn’t even agree to hold a meeting.
A primary issue is the level of discretionary spending allowed under the 2011 Budget Control Act (BCA), which included across-the-board spending cuts known as the “sequester.” Republicans hope to see such nonmandatory spending reduced to $967 billion in FY2014, as called for under the BCA – a roughly 2 percent cut from 2013’s $986 billion.
Of the $967 billion, a little more than half comes from defense spending – $498 billion. The rest, $469 billion, is from nonentitlement domestic programs.
Democrats are expected to try to eliminate the sequestration cuts that hit in mid-January, but say they’re willing to compromise downward from the pre-sequester spending level of $1.058 trillion. They propose new revenues to make up for changes to sequestration, such as tax increases on multinational corporations.
Senate Republican leader Mitch McConnell of Kentucky has called maintaining the cuts a “top priority.” But other key Republicans have expressed a willingness to compromise.
In a Wall Street Journal op-ed Oct. 8 that suggested the outlines of an eventual deal, House Budget Committee Chairman Paul Ryan (R) of Wisconsin expressed a preference for “gradual, structural reforms” to government spending rather than the “sudden, arbitrary cuts” that come from sequestration.
“The truth is, there's a better way to cut spending,” Congressman Ryan wrote. “We could provide relief from the discretionary spending levels in the Budget Control Act in exchange for structural reforms to entitlement programs.”
Obama, too, has suggested some willingness to give on entitlements. He has floated means-testing Medicare for higher-income seniors. He has proposed having federal employees contribute more toward their retirement benefits. He has also called for a new formula known as “chained CPI” that would reduce cost-of-living increases for Social Security benefits.
Obama has faced some backlash from his liberal base over changes to entitlements. The government shutdown united the Democrats, while Republicans on Capitol Hill fractured, but if budget negotiations delve into the structure of entitlements, Democratic unity could fray.
Analysts are skeptical that anything close to a “grand bargain” – not just a budget agreement, but also tax and entitlement reform – can be accomplished by Dec. 13. Commissions, gangs, and super-committees in the recent past have tried and failed to produce anything that leads to concrete action.
If the House-Senate budget conference fails to agree on a budget by Dec. 13, there’s no immediate consequence – just the threat of another shutdown a month later, on Jan. 15. Whether that will be enough to force action is the subject of intense debate in Washington.
Some analysts say Congress is feeling so burned by the just-concluded shutdown and brush with the debt ceiling that they can’t see either happening again anytime soon.
“I do not want to minimize the difficulty before them in seeking a compromise between the Senate's pre-sequester $1,058 billion discretionary spending level and the House's post-sequester $967 billion level,” writes Pete Davis, an investment adviser and former budget aide in Congress, in an e-mail. “However, my sense of member reaction to the events of the past few days is that no one wants to repeat that experience and certainly not in an election year.”
Mr. Davis also sees pressure rising from congressional appropriators of both parties, who are unhappy at having been cut out of their normal function. Congress has resorted to stop-gap funding measures to keep the government running the past few years.
“They want to get back in the game,” Davis says.
Others are less sanguine.
“We’ve been here before,” Jason Fichtner, former chief economist of the Social Security Administration, told NBC News. “How can we seriously expect any new conference committee to resolve the same difficult decisions that faced the (2011) Super Committee, the National Commission on Fiscal Responsibility and Reform (a.k.a. Simpson-Bowles), and have faced the House and Senate that resulted in this government shutdown in the first place? We can’t.”