The Grand Bargain’s Fiscal Timeline

“The White House has said it won’t negotiate a fiscal deal tied to an increase in the debt ceiling, like it did in 2011.  Nonetheless, lawmakers see the coming debate as perhaps the only impetus for action on a broad fiscal agreement, setting the early summer as a focal point for talks.”      -WSJ,  3/16/13

The ivory tower in Washington stands tall yet within its confines bustle confused and arguable members.  A building that instills such confidence yields congressmen and system so dilapidated.   A big task lies ahead, and unfortunately political history precludes disaster.  The president visited the Capitol building three time last week, meeting separately with each party’s lawmaker to delicately lay a framework toward agreement. They have until the summer to compromise on a 2014 budget and while that looms far in the horizon, the memories of failure are fresh: August 2011, 16%, 2-week market crash and US credit downgrade.

Both parties focus on strengthening the economy however their pursuits differ.  The Pew Research Center tallies that Democrats favor improving the job situation (84% of Democrats say it is a ‘top priority’, 77% for republicans).  While Republicans believe in deficit reduction (84% of Republicans say it is a ‘top priority’, 67% of Democrats).  Reducing the deficit is more than halfway down the list of Democrats top objectives, under the environment, education, helping the poor, gun-control… Ironically deficit reduction was  the number one priority for Democrats a decade ago, however the culmination of a recession, war and a ballooning deficit were enough to swap the parties ideologies in 2010.  Democrats and Republican priorities are well reflected in their respective house’s budget proposals:

Senate Democrats: House Republicans:
$975bn new taxes No new revenue
Deficit cut $1.5tn over 10 years… Deficit cut $4.6tn over 10 years…
$100bn stimulus No stimulus
Cut $218 from Domestic Agencies Cut $571 from Domestic Agencies
Cut $240bn from Defense No defense cuts
Cut $275bn from Healthcare Cut $2.7tn from Healthcare (repeal Obamacare)
Replace sequester with cuts and revenue. Leave sequester in place except for defense department

Possible Similarities:

  • Overhaul tax code
  • Means-testing Medicare benefits
  • Changing Social Security’s inflation calculation

Even when both parties agree on an item to cut, they disagree how to use the proceeds. Democrats propose to reduce the deficit while Republicans suggest offsetting further tax cuts.  Obama last week advised that their “differences are just too wide.”  Top Senate Republican Mitch McConnell said of the Democrats proposal, it will “entrench government waste and cronyism, rather than root it out.”  The fervor is palpable. Both houses expect to pass their polarized budget bills next week but nobody expects any debate until the summer deadline nears.

Next week, in the final days before a 2-week recess, legislators are separately expected to extend federal spending through September 30 to avoid government shutdown.  This continuing resolution funds the government through temporary extensions of current discretionary spending programs.  Currently expiring March 27, both houses are expected to pass bills too continue the resolution this week.  This is no new business: continuing resolutions have been signed every 6 months dating back to October 2010.

Timeline:

  • March 27:    Continuing Resolution expires.
  • April 8:         Week Obama releases his budget blueprint.
  • May 18:         Deadline up to which Federal law allows government to borrow money.
  • July-August:    Treasury can fund congress through emergency measures (if no deal).
  • Post-August:    Debt-ceiling must be raised to fund government (if no deal).

After that, 2014 Midterm elections will polarize both parties, forcing them away from the bargaining table and toward their electorates for votes.  Similarly in 2015, Obama’s leverage could fade as parties prepare for 2016 presidential elections.

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