Washington Update

Shutdown Ends, but Potential Battles Loom Over the Debt Ceiling and Budget Negotiations

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On October 16, 2013, President Obama signed into law (H.R. 2775, Public Law 113-46) the Continuing Appropriations Act, 2014, to end the government shutdown and raise the debt ceiling. The law contains several important provisions:

  • The government is open and funded at the FY13, post-sequester level ($986 billion) through January 15, 2014;
  • The debt ceiling has been raised and the Treasury is able to borrow through February 7, 2014; and
  • As part of the agreement, a conference committee on budgetary matters has begun to work on a long-term solution to set the overall limits for FY14. The conference committee is required to report back to Congress no later than December 13, 2013.

House Republicans were unable to achieve their goal of defunding or delaying the Affordable Care Act (ACA), but they won a victory in the agreement with a provision for stricter income monitoring of those seeking subsidies and tax credits under the ACA.

Senate Minority Leader Mitch McConnell (R-KY), who brokered the deal with Majority Leader Harry Reid (D-NV) to end the shutdown, stressed that his party no longer will try to defund the ACA or shut down the government again. Meanwhile, Democrats face the potential prospect of stiff new spending limits in January as part of the 2011 Budget Control Act (Act), which created the sequester. The Act cut $917 billion in spending over 10 years in return for allowing the debt limit to rise by $900 billion. In addition, when the Joint Select Committee on Deficit Reduction failed to agree on a debt-reduction program, the Act set spending caps that would result in an additional $1.2 trillion in cuts from projected spending levels through FY 2021, including $85 billion in across-the-board cuts that took effect last March.

Now, the question is whether the sequestration gives Republicans any leverage in upcoming House-Senate conference committee negotiations on the budget.

The continuing resolution, commonly referred to as a CR, that Congress agreed on in order to end the shutdown, keeps spending below the levels that President Obama and other Democrats say is necessary. The Senate Budget Resolution sets higher 2014 funding levels than called for under sequestration and would replace across-the-board cuts with longer-term budget savings from spending cuts and tax increases. Senate Budget Committee Chairman Patty Murray (D-WA) told National Public Radio in September, “Replacing sequestration is one of my top priorities.” But Republicans have adamantly opposed any discussion of new revenues through tax increases. However, some commentators have noted that because the military is in line for extremely deep automatic cuts, it could take away the GOP’s leverage in negotiations.

The two-week shutdown cost at least $23 billion in lost economic output, or 0.6% of projected annualized GDP growth, according to the Standard and Poor’s and Moody’s Analytics ratings agencies.

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