In a city that has become accustomed to brinksmanship, with the threat of government shutdowns becoming the norm, all eyes were on House and Senate Budget Committee Chairs Rep. Paul Ryan (R-WI) and Sen. Patty Murray (D-WA) as they led a bipartisan committee’s efforts to broker the first divided-government budget agreement since 1986. The two-year agreement, released on December 10, drew considerable attention. It is not the grand bargain many had hoped for, and the list of what is missing from the modest agreement is almost longer than what it does contain.
But for all the criticisms thrown out by both Republicans and Democrats, this modest deal is remarkable considering most fiscal debates over the last three years have nearly paralyzed the capital and have resulted in agreements that last only a few months. The budget deal serves as a rare example of bipartisanship and reduces—but does not eliminate—the threat of another federal government shutdown through fiscal year 2015.
The Bipartisan Budget Act of 2013, passed by the House of Representatives on December 12 in an unexpectedly strong vote of 332-94, sets the federal government’s discretionary spending levels through FY 2015. As part of the agreement to reopen the government after the October shutdown, the federal government was funded through January 15, 2014, and a conference committee was established to broker a budget deal by December 13.
The agreement would provide $63 billion to relieve the across-the-board sequester cuts enacted as part of the Budget Control Act of 2011, evenly split between defense and nondefense discretionary spending. The sequester cuts would be replaced with additional non-tax revenue and savings, and the agreement would reduce the deficit over the next 10 years.
The Senate is expected to pass the bill the week of December 16. From there, the House and Senate Appropriations Committees will draft the funding bills for federal agencies, likely combining them into one omnibus bill. Congress will have until January 15 to pass any funding bills.
What’s in the Deal?
Discretionary Spending Levels
According to the Congressional Budget Office, the two-year framework would result in approximately $23 billion in net deficit reduction over 10 years.1 It contains $85 billion in savings through spending cuts and new revenue, with about $62 billion of that going toward restoring spending affected by sequestration. For 2014, discretionary spending is set at $1.012 trillion, $45 billion higher than under sequestration. For 2015, the spending level is set at $1.014 trillion. The agreed-upon amounts are about halfway between those sought by House Republicans and Senate Democrats ($967 billion and $1.058 trillion, respectively).
Direct Revenue and Spending Changes
The cost of sequestration relief and additional savings would come from changes in the following areas:
- Prevention of waste, fraud, and abuse: The CBO estimates that changes in this area would reduce direct spending by approximately $1.9 billion and increase revenue by about $0.6 billion over 10 years. Savings and revenue would come from improving the collection of unemployment insurance overpayments, strengthening Medicaid third-party liability, updating the reporting of inmate data, and restricting access to the “Death Master File”—records of deceased individuals and other information maintained by the Social Security Administration.
- Federal oil and gas programs: These changes would reduce spending by an estimated $4.5 billion over 10 years. The agreement would repeal provisions of the Energy Policy Act of 2005 relating to certain R&D activities, reduce payment amounts made to states under the Mineral Leasing Act, limit the amount of interest on overpayments of oil and gas royalties from federal leases, approve an agreement with Mexico concerning oil and gas resources, and rescind available funds related to the Strategic Petroleum Reserve.
- Federal civilian and military retirement benefits: Enacting these changes would result in a spending reduction of $6.2 billion and revenue increase of $6 billion over 10 years. The plan would increase federal employee retirement contributions for new employees with less than five years of service and reduce the annual cost-of-living adjustment for military retirees under the age of 62.
- Higher Education Act of 1965: The CBO estimates that changes to this act would reduce spending by $5.1 billion over 10 years. The compensation guaranty agencies receive for rehabilitating a loan from the Federal Family Education Loan program would be reduced, and the bill would eliminate the mandatory spending for payments to nonprofit student loan services.
- Aviation and Transportation Security Act: The resulting increase in security-related fees and repeal of a requirement that the Maritime Administration reimburse federal agencies for costs relating to shipping food aid would reduce direct spending by $13.4 billion over 10 years.
- Other miscellaneous provisions: Changes relating to pensions, customs fees, and other items would result in a reduction in direct spending of $19.3 billion over 10 years. One change would affect manufacturers that provide pension benefits, as the deal would increase the premiums employers pay to the Pension Benefit Guaranty Corporation.
What’s Not Included?
Before the agreement was even unveiled, the grumblings began over what was left out. Democrats had hoped for an extension of unemployment insurance for the long-term unemployed as well as provisions to close corporate tax “loopholes,” while Republicans wanted entitlement reform. Murray and Ryan, however, managed to reach a consensus because they stayed away from the more contentious issues. Earlier in the year, many had hoped that tax reform would be included in a grand bargain.
At the end of 2013, dozens of provisions in the tax code will expire. Again. Many of these provisions, such as the research and experimentation tax credit, are important to manufacturers; however, it has become common for Congress to wait and retroactively renew them. Although many of the provisions are popular, the cost of paying for the package would have been an unsurmountable obstacle in this agreement. The tax-writing committees’ chairmen have stated a desire to tackle comprehensive tax reform; the tax extender package will likely be rolled into that debate.
Coming up in the spring is the debate over the debt limit. The agreement to reopen the government in October included a provision allowing the Treasury Department to borrow money until February 8, when it will be time to raise the debt ceiling again. Members of Congress who were unsatisfied with the budget agreement will likely look to “get more” out of the debt ceiling debate, setting the stage for another fiscal showdown.
The Bipartisan Budget Act of 2013 is small and imperfect, but the mere presence of a deal in a deeply divided Congress is progress, and has paused the cycle of lurching from crisis to crisis.
- 1. All dollar amounts referenced are over a 10-year period—2014-2023.