Bloomberg News

U.S. Budget Agreement Eases Spending Cuts Over Two Years

December 10, 2013

Budget Battle

House Budget Committee Chairman Representative Paul Ryan and Senate Budget Committee Chair Patty Murray on Capitol Hill in Washington on Oct. 17. Photographer: Scott Applewhite/AP Photo

U.S. budget negotiators unveiled an agreement to ease automatic spending cuts by about $63 billion over two years and reduce the deficit by $23 billion, breaking a three-year cycle of fiscal standoffs.

Chief architects Senator Patty Murray and Representative Paul Ryan today said the compromise avoids a government shutdown when funding authority expires Jan. 15 and aids the U.S. economy, which they said had been damaged by a series of fiscal feuds.

“It is an important step in helping heal some of the wounds here in Congress,” Murray, a Washington state Democrat, said today at a Capitol Hill news conference.

Ryan, a Wisconsin Republican, said he sees the deal as “a step in the right direction.” He said: “In divided government, you don’t always get what you want.”

The bipartisan budget plan, which will be considered by the Republican-led House later this week, would set U.S. spending at about $1.01 trillion for this year, higher than the $967 billion required in a 2011 budget accord. The agreement sets spending for defense at $520.5 billion and for non-defense at $491.8 billion.

The accord would reduce the U.S. budget deficit by $20 billion to $23 billion, the lawmakers said.

President Barack Obama called the deal a “good first step” toward a compromise that will meet some of his goals for spending priorities.

‘Good Sign’

“This agreement doesn’t include everything I’d like -- and I know many Republicans feel the same way,” he said in a statement released by the White House. “That’s the nature of compromise. But it’s a good sign that Democrats and Republicans in Congress were able to come together and break the cycle of short-sighted, crisis-driven decision-making to get this done.”

Standard & Poor’s 500 Index futures rose and 10-year Treasuries fell as lawmakers forged the deal. S&P 500 futures added 0.3 percent by 7:55 p.m. in New York, 9:55 a.m. Dec. 11 in Tokyo, following the gauge’s retreat from a record in New York today.

Yields on 10-year U.S. Treasuries rose two basis points, or 0.02 percentage point, to 2.82 percent after falling four basis points today.

Selling the agreement in Congress won’t be easy, as skepticism has emerged in both political parties. It doesn’t include an extension of expiring unemployment benefits for 1.3 million Americans that Democrats are demanding by the end of the year, and that Obama urged lawmakers to pass.

Rubio Opposes

Some Republicans are balking because the accord pushes savings into future years and includes a variety of user fees that small-government groups are labeling tax increases.

Senator Marco Rubio, a Florida Republican, said he’ll oppose the budget deal. The agreement “cancels earlier spending reductions, instead of making some tough decisions about how to tackle our long-term fiscal challenges caused by runaway Washington spending,” he said in an e-mailed statement.

The accord would ease the automatic spending cuts known as sequestration by $40 billion in 2014 and about $20 billion in 2015.

House Republican leaders, who saw their party’s approval ratings plummet after the 16-day government shutdown in October, quickly embraced the deal.

“While modest in scale, this agreement represents a positive step forward by replacing one-time spending cuts with permanent reforms to mandatory spending programs that will produce real, lasting savings,” House Speaker John Boehner said in a statement.

Retirement Contributions

The main components of the deal include raising contributions that federal employees make to their retirement plans and increasing premiums for pensions backed by the Pension Benefit Guaranty Corp.

The agreement includes a grab bag of obscure savings provisions, with an emphasis on tightening eligibility criteria and eliminating fraud and overpayments in programs including unemployment insurance, Medicaid, and benefits for federal prisoners.

It also eliminates some programs including a 2005 natural gas and petroleum resources research program and caps income paid to federal contractors.

Republican leaders want to sell the deal to wary rank-and-file by emphasizing that it will reduce the deficit by an additional $20 billion in the form of increased fees. Those include raising the fees paid by airline passengers, or boosting the so-called Sept. 11 security fee on airline tickets.

Stumbling Block

Winning support from some Republicans could be a stumbling block. Senate Minority Leader Mitch McConnell, a Kentucky Republican who would be responsible for rounding up votes in his chamber, said today he’s loath to change the spending caps Republicans fought hard to secure.

“We’ve reduced government spending for two years in a row,” McConnell told reporters. “Many of us came to Congress to do just that. I think it has been a success and I hope we don’t revisit it.”

The panel’s Dec. 13 deadline was set as part of a deal ending the government shutdown in October.

A number of conservative groups also criticized the deal.

Heritage Action for America, a group that tracks lawmaker votes and is affiliated with the Heritage Foundation that backs limited government, said it opposed short-term spending above the sequestration levels in return for future savings.

‘Wrong Direction’

“While imperfect, the sequester has proven to be an effective tool in forcing Congress to reduce discretionary spending,” according to a statement from the Washington-based group. “A gimmicky, spend-now-cut-later deal will take our nation in the wrong direction.”

Americans for Prosperity, an Arlington, Virginia-based group that says it backs individual freedom and smaller government, today urged Republicans to “stand firm” on spending cuts approved two years ago.

“Otherwise, congressional Republicans are joining liberal Democrats in breaking their word to the American people to finally begin reining in government overspending that has left us over $17 trillion in debt,” according to a statement. “Politicians choosing to go back on their promise will be held accountable for their actions.”

The final product mollified some Democrats who had earlier said they were concerned about the possible effects on federal workers. Negotiators included pension payment increases for military personnel to mitigate the effects on federal workers.

Representative Chris Van Hollen, the top Democrat on the House Budget Committee, said the deal “replaces part of the job-killing sequester” without disproportionately affecting working families including government workers.

“It’s a small, but good step forward for our country,” he said in a statement. Van Hollen’s support for the deal is important, as he will need to help sell it in the House, and his Maryland district is home to many federal workers.

To contact the reporter on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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