Next Steps for U.S. Budget and Debt

October 23, 2013

pic-capitol-roadLast week, following a two-week government shutdown and standoff over raising the debt ceiling, lawmakers approved legislation on Oct. 17, 2013 to extend spending levels, at the current sequester-reduced rates, through Jan. 15 and raise the debt limit through Feb. 7. The hard-fought agreement came the morning of the deadline outlined by Treasury of when an increase to the debt limit would be necessary to enable the government to continue paying its bills. In addition to providing an extension to these two key deadlines, the legislation, H.R. 2775, included provisions to provide back pay to furloughed government employees, and a requirement that income levels be verified for those seeking health care subsidies through state insurance exchanges.

Perhaps most important, in terms of setting the stage for a long-term economic solution, the Senate and House both agreed to establish a Conference Committee which is charged with coming up with a bipartisan budget blueprint by the Dec. 13 deadline agreed to as part of the Senate deal to suspend the debt limit and end the government shutdown last week.

Wasting no time, following the aforementioned vote, House Budget Committee Chairman Paul Ryan (R-Wis.) and Senate Budget Committee Chairman Patty Murray (D-Wash.) met to discuss a path forward on the fiscal 2014 budget resolutions.

The conference committee is comprised of 12 Democrats and 10 Republicans in the Senate and four Republicans and three Democrats in the House. The majority of the conferees serve on the House and Senate Budget committees, but several serve on the congressional tax-writing committees, as well. Senate tax-writers that will serve on the conference committee include Ron Wyden (D-Ore.), Bill Nelson (D-Fla.), Debbie Stabenow (D-Mich.), Charles Grassley (R-Iowa), Mike Crapo (R-Idaho), Rob Portman (R-Ohio), and Pat Toomey (R-Pa.) House tax-writers on the conference committee – in addition to Paul Ryan – include Tom Price (R-Ga.), and Diane Black (R-Tenn).

The entire committee is not expected to meet until the week of Oct. 28, when the Senate returns from recess but signs are already indicating significant challenges ahead for reaching a bipartisan agreement. Among the key questions for the conferees are whether to seek to use the powerful budgeting tool of reconciliation, and how to address the coming sequester for domestic and defense programs.

Additionally, the deep divide between the House and Senate over tax and spending issues will likely complicate negotiations—in general, the House plan (H.Con.Res. 25) would cut spending dramatically without raising taxes, while the Senate plan (S.Con.Res. 8) would cut spending by relatively little in comparison while raising taxes substantially.

Each plan measures its proposed  revenue increases or spending cuts against its own unique fiscal baselines. The House budget resolution, which was approved on March 21, calls for an estimated $4.6 trillion in federal spending cuts from 2014-2023 and does not raise tax revenue. It claims that it would balance the budget in 10 years – with a $7 billion surplus in 2023 – due in part to the additional federal receipts stemming from the enactment earlier this year of the American Taxpayer Relief Act of 2012 as well as a repeal of the Patient Protection and Affordable Care Act.

The House plan also calls for floor consideration of a revenue-neutral corporate and individual tax reform package modeled on a framework put forward by House Ways and Means Committee Chairman Dave Camp (R-Mich.) that, among other things, would reduce the corporate tax rate to 25 percent, transition the tax code to a more competitive system of international taxation, and substantially lower tax rates for individuals, with a goal of achieving a top individual rate of 25 percent.

In contrast, the Senate budget resolution, which was passed on March 23, calls for $1.85 trillion in deficit reduction over 10 years split evenly between new tax revenue and spending cuts. The blueprint also calls for comprehensive tax reform to “eliminate or modify tax breaks that disproportionately benefit the wealthiest Americans, aggressively address the tax gap and offshore tax abuse, and eliminate unfair and inefficient business tax loopholes.”

Another factor to the conference committee process is the CR does not include penalties if the conferees fail to agree on a budget blueprint or if Congress does not adopt a long-term budget based on the conferees recommendations.

Ways and Means Committee Chairman Camp has said that a budget conference potentially could produce “either instructions for tax reform or some other agreements that make it easier for us to do tax reform”; but he added that “if a budget conference isn’t successful, we can always fall back on regular order.” Camp also noted that he remains on track to mark up tax reform legislation in his committee by the end of this year.

Senate Finance Committee Chairman Max Baucus (D-Mont.) has indicated that his committee  will release a “very meaningful document” this fall, but cautioned that it was too early to know if the committee would mark up a bill by the end of the year.

NSBA has been outspoken on the need to address the debt in a reasonable, long-term manner. Please click here for more on NSBA’s proposals.