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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.

Congress returns from its two-week recess this week, looking ahead at the need to raise the nation’s statutory debt limit within the next two months and associated efforts to cut federal spending or establish new budgetary controls. Lawmakers have about two months to increase the debt limit, according to the Treasury Department. Although leaders of both parties have said the debt ceiling must be raised and that some mechanism is needed to limit future deficits, there is no consensus on any of the crucial details. Two sets of bipartisan talks are under way or soon to begin, but it remains unclear what kind of deficit reduction plan can satisfy both liberal lawmakers concerned about maintaining costly government services and conservatives who demand spending reductions and prefer to rule out revenue increases. Various ideas to restrict spending, limit debt levels or increase revenue have been floated. Among the ideas on the table are a constitutional amendment requiring a balanced budget; caps on spending or deficits; specific spending cuts; and tax increases.

While the debt limit dominates the political discussion in Washington, there are other issues that Republican and Democratic leaders want to pursue on the House and Senate floors. The House will turn its attention this week to proposals to increase domestic oil and gas production and will consider curbs on the executive branch’s regulatory powers under the health care overhaul signed into law last year. The Senate’s agenda could include wrapping up work on a small-business research bill, although that measure may be shelved as a result of disputes over amendments unrelated to the bill’s provisions. The Senate may also try to vote on ending some tax breaks for oil and gas companies and the confirmation of outstanding judicial nominees.

While seeking a way forward on the debt limit and deficit reduction, lawmakers may also be jousting over the related issue of the FY12 budget resolution. In the next few weeks, the Senate Democrats will likely bring up a pair of “test votes” on Republican and Democratic budget proposals. The first may be the GOP budget resolution adopted by the House just before the recess. Democrats oppose the measure because it proposes to reduce future debt and deficits by deep spending cuts alone, including by turning Medicaid into a block grant to states and transforming Medicare into more of a voucher program where subsidies are provided to buy private insurance. The Senate Republicans will try to force a vote on the President’s FY12 budget request to demonstrate that there is little support for the President’s funding priorities – even within his own party. The test votes would be similar to the ones held earlier this year to show that neither GOP nor Democratic spending plans for fiscal 2011 had sufficient support to pass, which helped prompt further efforts to find some middle ground.

Meanwhile, the Senate has yet to put forward their own version of the FY12 budget resolution, which would set the stage for Senate Appropriators to begin drafting their spending bills.