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It’s budget crunch time. If lawmakers say no ‘grand bargain,’ then what?

A ‘grand bargain’ that cuts entitlement programs and raises revenues, thus whittling the deficit in a big way, is not a likely outcome of House-Senate budget negotiations that begin Wednesday. The best hope is for a modest deal that averts another government shutdown. Is that doable?

House and Senate budget conferees gather for their first public meeting Wednesday with near zero expectations for a “grand bargain” to rein in the federal government’s $17 trillion debt but with higher prospects for a more modest deal that could, at least, avert another government shutdown.

The 29 lawmakers on the panel, led by Sen. Patty Murray (D) of Washington and Rep. Paul Ryan (R) of Wisconsin, are to give televised opening statements and then try to reconcile two divergent budget blueprints by Dec. 13.

The GOP-controlled House has produced an annual budget that calls for $967 million in discretionary spending. The Democratic-controlled Senate proposes $1.058 trillion.

“It’s a daunting task to get agreement on budget resolutions in the same universe but different planets,” says William Hoagland, a senior vice president at the Bipartisan Policy Center and former top GOP Senate budget aide.

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Moreover, gridlock and crisis mode have so become the norm in Congress that procedures once viewed as “regular order,” such as a conference committee to resolve differences between the House and Senate over the budget, now count as a remarkable achievement.

“The last time there was a conference agreement on a budget resolution with a divided Senate and House was 1986,” adds Mr. Hoagland.

That’s one reason expectations for this round of negotiations are set so low.

Also, the fundamentals from previous budget clashes haven’t changed: Republicans still don’t want to raise taxes; Democrats still don’t want to cut entitlement programs, unless Republicans raise taxes. Hence, no grand bargain.

But what is driving momentum toward a small deal, at least, is the conviction on both sides of the aisle that the $109 billion in new automatic spending cuts, set to take hold in January unless Congress comes up with a different plan, will hurt – and that some kind of a fix is crucial.

Democrats worry about the ongoing effect of these sequester cuts on the economy, jobs, and social programs.

Republicans focus on how the sequester will affect defense spending, which faces a $54 billion across-the-board cut. House Speaker John Boehner (R) of Ohio says new sequester cuts will “hollow out our military.”

Wednesday’s budget conference committee has none of the extraordinary powers of the Joint Select Committee on Deficit Reduction, or “supercommittee,” tasked by Congress in 2011 to come up with a plan to cut government deficits by $1.2 trillion over 10 years, as part of a deal to raise the debt limit.

When that effort failed, Congress defaulted to automatic spending cuts of the same scope, known as the sequester. Those automatic spending cuts, distasteful to both parties, are the prod for at least a small deal on spending.

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One approach is to approve fixes to offset or delay sequester cuts, but without increasing the deficit.

Another is to pass legislation allowing agencies more discretion in how they make the cuts, instead of across-the-board cuts now mandated by law.

Both the White House and Senate majority leader Harry Reid have said entitlement cuts or changes to the sequester are nonstarters without tax increases on the richest Americans or, at least, new tax revenue.

On the eve of Wednesday’s talks, leaders on both sides of the aisle cautioned the public against expecting any grand bargain.

“I don’t want to be misleading to people that we’re going to get a grand bargain,” says Congressman Ryan, who chairs the House Budget Committee. “That’s not in the cards.

“To me, a brand bargain means balancing the budget, and that’s not what this administration wants,” he adds. “I think we need to be candid about expectations.”

Asked Tuesday whether it’s possible for Democrats to “fix” sequestration without asking for new tax revenues, Senator Murray said, “It has to be fair and balanced.” Senate majority leader Harry Reid said, “No.”

But sources close to the budget talks say there are pockets of bipartisan agreement on savings that could be cobbled together to offset the sequester cuts and to help reach agreement on a fiscal year 2014 budget line.

These include:  

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  • Cut payments to Medicare health-care providers, and adjust the formula to pay Social Security recipients to decrease annual cost-of-living adjustments, both elements of President Obama’s proposed budget for fiscal 2014.
  • Require wealthier seniors to pay more for Medicare.
  • Instead of raising tax rates, identify new “user fees” that also generate revenue.
  • Expand offshore drilling or timber sales to raise revenue.
  • Implement tax reform to cut “tax expenditures,” or subsidies in the tax code, that both sides agree are wasteful or counterproductive.
  • Require federal workers to contribute more to their pensions.

“They’ve blanketed the airwaves with diminished expectations for these talks,” says Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “But both sides have an incentive to replace the sequester with more sensible savings.”

“The best they can do,” she adds, “may be to move the ball forward, instead of a gimmick or a punt.”