Lawmakers from both parties opened high-level budget negotiations Wednesday with a warning that no one should expect a large, long-term, “grand bargain”-type deal that involves curbing government spending, overhauling the tax code or revamping entitlement programs.
Instead, both sides seemed to agree that the best they can hope for is to reach an agreement to fund the federal government through fiscal 2014, which ends next Sept. 30.
The 29 handpicked members of the House of Representatives and Senate who compose the bipartisan committee, tasked after the partial government shutdown earlier this month with hammering out a deal to avert another fiscal showdown, also used their opening remarks Wednesday to stake out positions for the negotiations and protect priorities important to their constituencies.
“I want to say this from the get-go: If this conference becomes an argument about taxes, we’re not going to get anywhere,” said House Budget Committee Chair Paul Ryan, R-Wis., who’s the chair of the conference committee. “We won’t resolve all our differences here. We won’t solve all our problems. But we can make a good start.”
Democratic and a few Republican conferees signaled a desire to do something to revamp or replace the automatic budget cuts known as sequestration, a legacy of the 2011 Budget Control Act.
Sen. Patty Murray, D-Wash., the chair of the Senate Budget Committee, said the panel should focus on alleviating sequestration’s impact, adding that she was “ready to agree to some tough spending cuts that, unlike the sequester caps that disappear in 2022, would be locked into law.”
She added that she’d make that deal in return for Republicans agreeing to work with Democrats to “scour the bloated tax code – and close some wasteful tax loopholes and special interest subsidies.” That’s important because it signaled a way to raise revenues without having to take a vote for new taxes.
The notion of updating the tax code got support from Sen. Rob Portman, R-Ohio, a former White House budget director, who said the “current system is antiquated” and “it’s obvious to me that this is urgent.”
The conference committee was formed as part of the deal to reopen the parts of the government that were shut down for 16 days during a congressional battle over the Affordable Care Act and raising the nation’s debt ceiling. The shutdown and the threat of a potential default on U.S. debt zapped consumer confidence and are widely viewed as having slowed an already underperforming economy.
In fact, as lawmakers met to discuss ways to prevent another shutdown, the Federal Reserve ended a two-day meeting Wednesday by leaving in place its controversial bond-buying program, which was designed to stimulate the economy.
“Fiscal policy is restraining economic growth,” the Fed said in a statement, suggesting that the sharp cuts in government spending are dragging down an otherwise stronger underlying rate of growth.
That may be true, but the combination of tax hikes that began in January and spending cuts that began in March led to a steep drop in the budget deficit. The Treasury Department released final budget numbers late Wednesday for the 2013 fiscal year, which showed a deficit of $680 billion. That’s $409 billion below the previous year and $293 billion less than the Obama administration had anticipated in its proposed budget for fiscal 2014. The deficit, expressed as a percentage of the total economy, fell by 2.7 percentage points to 4.1 percent.
Conference committee members must reconcile differences in competing budget plans: the $3.53 trillion budget passed by the Republican-controlled House and the $3.7 trillion budget passed by the Democratic-held Senate.
The House plan would repeal most of the health care law, significantly revamp Medicare and Medicaid, and overhaul the tax code, in part by reducing the corporate tax rate and eliminating the alternative minimum tax.
The Senate plan leaves the health care law alone. It would reduce Medicare and Medicaid spending without making major changes in the programs and would reduce the deficit through nearly $1 trillion in tax hikes over a decade, largely on corporations and wealthy earners.
The conferees, selected by House and Senate leaders, have until Dec. 13 to reach an agreement.
That would give House and Senate appropriators enough time to craft spending bills and get them to the floors of their chambers in order to avoid another shutdown Jan. 15, when the short-term funding deal that reopened the government expires. The next round of sequestration cuts – about a $20 billion hit for the military – takes effect in January.
As pleasant and collegial as Wednesday’s conference committee meeting was, it was also plain that getting to a remedy to the nation’s fiscal woes won’t be easy.
“The House Republican and Senate Democratic budgets before us today represent dramatically different visions of America,” said Rep. Chris Van Hollen, D-Md. “We will not bridge all the differences, but I hope we can make some progress. . . . But we must be honest with the public about the nature of our differences. To govern is to choose, and these budgets reflect those choices.”
Sen. Charles Grassley, R-Iowa, said he was wary of striking a deal that relieved sequestration and raised taxes in return for some entitlement revisions.
“I will not entertain a so-called balanced plan that punishes small business and job creators with higher taxes in exchange for minor entitlement reforms at some point in the future,” Grassley vowed.