Patty Murray and Paul Ryan, the Democratic and Republican chairs of the US budget conference committee, reached a cross-party agreement on Tuesday that marked a rare moment of fiscal policy comity on Capitol Hill. From the beginning of their negotiations in the wake of the October government shutdown – Mr Ryan and Ms Murray lowered expectations about what they could achieve, betting that a small deal would be the easiest to sell politically. And the agreement was indeed small. So what’s in it?
1. The key numbers: The agreement sets discretionary spending – which funds government agencies, including the Pentagon, at $1.012tn in 2014 – or $45bn higher than the $967bn level it would fall to under planned automatic budget cuts, known as sequestration. For 2015, spending levels were set $18bn higher, offering more relief from fiscal drag. But even at $63bn, this only replaces a fraction of the $1.2tn in automatic cuts forced by sequestration over a decade. If the deal stopped there, it would have no impact on US deficits.
2. The deficit effect: However, negotiators agreed to extend an often overlooked portion of sequestration which cuts payments to healthcare providers such as hospitals by 2 per cent under Medicare, the health plan for seniors. Those reductions will now be in place beyond 2021 and into 2022 and 2023, saving the US government more than $20bn, and allowing Mr Ryan to sell it to sceptical Republicans as reducing the deficit.
3. The balance: The replacement of sequestration cuts is achieved by finding $63bn in savings elsewhere. Part of those savings came from spending cuts, and part from revenue increases taken from higher fees, rather than tax rises, which Republicans have been adamantly opposed to. Below are some examples.
4. Retirement savings: Among the biggest changes are higher contributions to retirement schemes from federal workers and a lower cost of living adjustment for the pensions of younger members of the US military. Businesses are also being asked to increase the premiums they pay the federal government to guarantee their workers’ pensions. There are also a number of provisions aimed at preventing budgetary fraud, including reining in pension payments to dead people, unemployment cheques to criminals, and certain other improper payments under Medicaid, the health plan for the poor.
5. Energy: The deal makes a few changes to US energy policy, such as ending a government research programme designed for the development of ultra-deepwater and unconventional natural gas dating back to 2005. Perhaps most importantly it approves the US-Mexico Transboundary Agreement, which will help both countries to conduct further exploration in the Gulf of Mexico, and share revenue from the effort.
6. Fees and other payments: Aviation security fees are increased in the deal, customs user fees are extended, and a new levy can be charged by the US government conservation agency to bring in more revenue. Meanwhile, a limit is set on the amount contractors can charge the federal government to compensate an employee, and non-profit student loan servicers will no longer have the special budgetary treatment they currently receive.
7. Unfinished business: Notably absent from the deal is any extension of federal jobless benefits, which expire for 1.3m long-term unemployed Americans on December 31. Democrats tried to push for them to be included in the deal, but ultimately failed. Their hope is that somehow an extension can be passed separately. Also not tackled is the need to reverse a sharp cut in reimbursements for doctors under government healthcare programmes, which will take effect in January, as well as a series of corporate tax breaks that expire at the end of the year. And given the size of the deal, there is nothing in there that counts as a significant reform to the costliest social programmes, such Medicare and Social Security, or represents a significant step towards reforming the US tax code.
8. The next steps: The agreement will be voted on by the House of Representatives on Thursday, to be followed by the Senate, which means it could be on President Barack Obama’s desk for his signature well before the Christmas holiday. But Mr Ryan and Ms Murray still have to fully sell the deal to their rank and file members, and success is not guaranteed, especially amid some serious misgivings about the deal from the right. If the deal is approved, it will make a government shutdown much less likely on January 15, when current funding expires. The agreement does not raise the US debt ceiling, however, which could be the source of another political clash next year.
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