Last updated: December 11, 2013 12:41 am

US Congress strikes budget deal

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Paul Ryan (left), House Budget Committee chairman, and Patty Murray, Senate Budget Committee chairman, hold a news conference to introduce The Bipartisan Budget Act of 2013 at the US Capitol in Washington, December 10, 2013. Budget negotiators in the U.S. Congress have reached an agreement on Tuesday that, if approved by the House and Senate, could restore some order to the nation's chaotic budget process and avoid another government shutdown on Jan. 15©Reuters

Democratic and Republican negotiators on Tuesday night agreed a deal to set spending levels until 2015, breaking the latest fiscal logjam in Congress and stopping a cycle of crisis-driven economic policy making in Washington.

The agreement is small in size – worth $85bn – but may herald the return of an era in which Congress can perform basic functions without the political brinkmanship that has repeatedly threatened the US economic recovery in recent years.

It will increase spending in the near term, easing the pain of “sequestration” budget cuts that began in March and drew the criticism of the International Monetary Fund for imposing excessive austerity on US government agencies and damaging economic growth.

“I think this agreement is a clear improvement on the status quo,” said Paul Ryan, the former Republican vice-presidential candidate and chairman of the House budget committee. “It makes sure we don’t lurch from crisis to crisis,” he said on Tuesday.

President Barack Obama said in a statement that the deal was a “good first step” and asked Congress to pass it, “so I can sign it into law and our economy can continue growing and creating jobs without more Washington headwinds”.

If the deal is approved by Congress, it would be likely to avert a government shutdown in mid-January and again at the start of the next fiscal year in October 2014.

It does not entirely eliminate the potential for a renewed budget crisis, however, since it does not increase the US debt limit. New borrowings will have to be approved by Congress early in 2014, a process that has often been fraught under the Obama administration.

The rise in spending levels over the next two years to replace “sequestration” will be worth $63bn, to be paid for by increased fees on airline travellers, and higher contributions to pensions for federal workers, including the military.

It will significantly loosen the belt on US government departments and agencies, ranging from the Pentagon to the National Institutes of Health and the Environmental Protection Agency.

Over a decade, the agreement will reduce the US deficit by more than $20bn since the deal adds fresh cuts to healthcare providers for seniors, such as hospitals, in 2022 and 2023.

As the deal came into view, it faced some opposition – mainly from the right – which could spell problems in its passing through Congress. Votes are expected in the House of Representatives later this week, to be followed by the Senate.

Americans for Prosperity, a conservative group associated with the billionaire Koch Brothers, urged Republicans to vote against the emerging deal, as did Heritage Action, another rightwing group.

“The American people demanded, and were promised, reasonable spending limits. Politicians choosing to go back on their promise will be held accountable for their actions,” said Tim Phillips, president of AFP, in a statement on Tuesday before the deal was released. “Republicans should once again stand firm in upholding the modest sequestration spending cuts.”

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Marco Rubio, the Florida senator and plausible 2016 Republican presidential nominee, also signalled that he was opposed to the agreement.

But Republican leaders praised 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 programmes that will produce real, lasting savings,” said John Boehner, speaker of the House of Representatives.

Democrats were unhappy that the deal did not extend expiring jobless benefits, but their scepticism did not appear as intense as the opposition from the right.

“This agreement isn’t perfect, but it is certainly better than no agreement at all. This difficult negotiation has gone through many phases. The final product replaces part of the job-killing sequestration without disproportionally hitting working families, including hundreds of thousands of public servants,” said Chris Van Hollen, the senior Democrat on the budget committee. “It’s a small, but good step forward for our country.”

Due to its limited nature, the deal does not tackle broader fiscal problems affecting the US, such as the long-term cost of health and pension plans which could become more expensive as a consequence of the ageing population. It also does not contain big changes to the tax code, which many on Capitol Hill want to see transformed.

“This bipartisan deal looks like a good step, but it doesn’t address the real drivers of our long-term debt,” said Michael Peterson, president of the Peter G Peterson Foundation, which advocates for a bigger deficit reduction deal. “We should all welcome our lawmakers coming together on a budget agreement that would end the recent cycle of governing by crisis. But make no mistake – we still have a lot more to do to put our nation on a sustainable fiscal path.”

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