Category: Budget

Negotiations broke down (again) yesterday as the House GOP leadership failed to find enough support among their caucus to move forward two separate proposals to end the shutdown and raise the nation’s debt limit. All eyes are on the Senate as they resume negotiations. The tentative deal under discussion in the Senate would reopen the government by extending current funding levels of $986 billion through January 15^th, lift the debt ceiling until February 7^th, and start a budget conference with instructions that it report a broader budget deal by December 13^th. The December date is significant because it would give Congress time between now and then to negotiate a broader budget agreement to potentially modify or end sequestration before the next round of cuts are scheduled to hit in January.

The deal being discussed is expected to contain a single change in the 2010 health care law: stricter efforts to verify the income of individuals who apply for subsidies under the Affordable Care Act. The proposal would also allow the Treasury Department to use extraordinary measures when approaching a future debt limit. And finally there is support in both parties for a provision that would give agencies more flexibility to implement future sequestration cuts rather than just applying those cuts across-the-board.

Meanwhile, financial markets and credit ratings agencies are monitoring the action on Capitol Hill for any signs of a standoff that could lead to default. There is great uncertainty over when exactly the Treasury Department would run out of money if there is a default. Treasury Secretary Jacob Lew has said the government would only have $30 billion in cash on hand beyond Thursday to meet obligations.

Congressional leaders continue to work toward reopening government and extend the debt limit before the October 27^th deadline. While details are vague, it appears that the proposal would immediately end the shutdown and fund federal agencies for six months at current spending levels. It would maintain the automatic cuts, or sequester, but give agency officials more flexibility to decide where the cuts should fall rather than just mandating across-the-board cuts (although some agencies may ultimately decide to implement some uniform reductions). In addition, the proposal would raise the debt limit through January 31, 2014.

It is unclear at this point whether the proposal will also include directions to House and Senate budget committees to immediately enter negotiations over broader budget issues and to issue a report by January 15, 2014. If an agreement could be reached, it would clear a path for another increase in the debt limit later that month, without additional drama.

In exchange, Republicans may seek minor adjustments to health care reform. The first would delay for two years a 2.3 percent tax on medical devices that is unpopular in both parties. The second would require internal auditors to ensure that people who get tax subsidies to buy health insurance are in fact eligible.

House GOP leaders are meeting this morning to discuss their options. Both chambers are scheduled to meet today and could possible begin moving a compromise proposal forward to end the current fiscal crisis.

Negotiations to end the government shutdown and raise the debt limit continued into the night Thursday after House Republicans and President Obama failed to reach an agreement on ending the fiscal standoff during a White House meeting earlier in the day. The GOP favors a temporary increase in the debt ceiling through November 22^nd but would require an agreement from Democrats to negotiate on a broader deal that could include tax and entitlement reforms. They could add in a provision to also reopen government but that is not clear yet. Meanwhile, a plan by Senator Susan Collins (R-ME) would do both and also repeal or delay the health care law’s medical device tax and give federal agencies flexibility to deal with the decade-long automatic spending cuts under sequestration during the next two years. In addition to that proposal, Senate Majority Leader Harry Reid (D-NV) will bring up a bill that would just raise the debt limit, possibly requiring vote on Saturday.

Lawmakers made no visible progress Wednesday on a stopgap spending bill to reopen federal government with the Senate once again rejecting piecemeal funding bills favored by the House. The funding impasse has kept the government shut down since the new federal fiscal year began October 1^st.

The focus today is on a White House meeting between President Obama and House Republican leaders aimed at trying to find an opening for ending the shutdown. One proposal from House Budget Chairman Paul Ryan (R-WI) will certainly be part of the discussion. Ryan’s plan calls for a six-week, $118 billion debt limit increase with dollar-for-dollar budget cuts. Before the increase is approved, however, both the House and Senate would have to agree to overhaul the tax code and entitlement programs during those six weeks and pass them, along with a long-term debt limit increase, when the six-week period expires. Finally, it would have some enforcing trigger, although the specifics were not announced, nor were the specifics of the cuts Ryan is seeking. It appears to be a similar proposal to previous ones that the Democrats have already rejected and it doesn’t specifically address the government shutdown.  But it does signal that the GOP has finally shifted away from defunding the health reform law to broader fiscal issues.

The Ryan proposal seems to a starting point for discussions that will take place with President Obama today, but the ultimate outcome is still uncertain. Even if everyone comes to some agreement to this short-term debt limit increase in exchange for reopening government, it seems unlikely that lawmakers can resolved their differences on tax and entitlement issues in just six weeks. And if the “enforcing trigger” is anything like what happened with sequestration, then we may be facing more pain before this is all over.