Federal Relations

May 9, 2011

Budgets and Debt

The Senate Budget Committee may mark up an FY12 budget resolution this week, while Democratic and Republican negotiators begin the serious work of trying to reach agreement on a debt reduction plan to accompany an increase in the debt limit.

Senate Budget Resolution: The Senate Budget Committee may mark up an FY12 budget resolution later in the week. If a markup is scheduled for later this week, committee rules require that 48 hours notice be provided so a decision must be made soon for this to happen. Senate Republicans have been eager to see Democrats unveil their budget after House Republicans adopted their budget blueprint in mid-April. Despite the harsh criticism the House GOP budget has received — particularly with regard to its proposal to fundamentally restructure Medicare for individuals who retire starting in 2022 — Republicans point out that it would put the nation back on a fiscally sustainable path, cutting deficits by $4.4 trillion compared with the FY12 budget that the President submitted in February. Democrats may proposed a resolution that includes some of the recommendations of the President’s fiscal commission, which would cut deficits by $4 trillion over 10 years through a combination of spending cuts and increases in revenues via an overhaul of the tax code. In sharp contrast to the House GOP budget, it would not restructure Medicare but would include small savings from the program, in addition to preventing scheduled cuts to Medicare physician reimbursement rates for a number of years. 

The Senate Majority Leader has given no further indication of when he may try to force a vote on the House Republican budget resolution. Reid early last week reiterated his intention to do so, which would put Senate Republicans on record regarding the House GOP’s proposal to restructure Medicare. But with House Republicans seemingly backing off from their Medicare proposal as part of the White House-led debt reduction talks, forcing a Senate vote on the House budget could unnecessarily complicate efforts to reach a bipartisan agreement.  

Debt Negotiations Continue: After last week’s initial meeting in which participants agreed on the need to address the nation’s fiscal problems and outlined their positions, the White House-led deficit reduction talks will begin the difficult process of hammering out an agreement. Negotiators on Tuesday are expected to focus on areas where both sides agree that spending can be cut, possibly through cuts to mandatory spending outside of the major entitlements. The bipartisan talks are seeking agreement on a debt reduction package to move in conjunction with legislation to increase the nation’s $14.3 trillion debt ceiling. Some Republicans have suggested that they will only allow for short-term debt limit extensions until a satisfactory debt reduction package is agreed to.  

Rather than negotiate a comprehensive agreement on taxes and entitlements, the emerging expectation is that any agreement will include some substantial spending cuts along with some form of budget controls to reduce future deficits. Battles over the larger tax and entitlement issues will be tabled until a later date, possibly after the 2012 elections. Republicans last week essentially admitted that as part of the debt limit talks they won’t be able to win the major changes to Medicare that they support, but they have vowed to continue fighting for their plan over the long run. The major battles in the current talks will be over the level and scope of immediate spending cuts, and the structure and enforcement mechanism for any statutory caps on spending or debt. Republicans support spending caps that would be enforced by automatic cuts in spending, while Democrats and the White House favor a cap on the level of debt held by the public that would be enforced by both automatic spending cuts and reductions in tax expenditures along with other tax breaks.