Federal Relations

September 12, 2012

Sequester “Fix” Discussed

There is growing pessimism on Capitol Hill that Congress will be able to reach a deal to avert the automatic spending cuts, known as sequesters, before – or even after – the November election. The “Gang of 8”, a bipartisan group of senators, continues to work on a comprehensive deficit reduction plan that most likely would not be unveiled until after the election, if at all. But even members of that group, who are typically optimistic about the prospects for reaching a deal, see little reason to hope for a breakthrough in advance of a lame-duck session.

The most likely scenario for dealing with the sequester is an idea to use roughly $55 billion as a “down payment” on the debt that would temporarily turn off automatic spending cuts and buy Congress at least six months to work out a bigger deal next year. The down payment would be linked to a deficit-reduction framework that would bind committees with jurisdiction over spending and taxes to an action plan. The $55-billion down payment under discussion would be equal to about half of the scheduled cuts triggered by sequestration next year to defense and non-defense spending. But the bipartisan group faces several hurdles to reaching a deal, such as whether any tax increases would be included in the $55-billion package. This fight has doomed previous efforts to reach a grand bargain deficit-reduction plan. Democratic negotiators say the down payment must include measures to raise new revenues, but Republicans have yet to agree. If a deal is reached and leaders sign off on it, Congress could approve the plan during the lame-duck session.

In the meantime, the House will vote Thursday on a largely symbolic GOP bill (HR 6365) that would require President Obama to offer an alternative to the across-the-board discretionary spending and mandatory defense spending cuts currently scheduled for January 2013. The proposed legislation would require the President to report by October 15th on how he would replace the sequester with other spending reductions, not tax increases, and would need to achieve $109 billion in replacement savings over five years. The legislation is expected to pass in the House on a party-line vote but has no prospects for approval in the Senate. House Democrats, meanwhile, plan to offer a Democratic substitute bill that would replace the sequester with cuts to agricultural subsidies by closing tax breaks for the oil and gas industry and higher taxes on millionaires, but it’s not likely to get a vote on the House floor.