THE FEDERAL BUDGET DEAL

ABSTRACT: As you probably know, Congress will vote this week on a budget deal for fiscal years 2014 and 2015. If the budget deal doesn’t pass, the government would shut down again on Jan. 15. The deal could fail to pass in Congress. Without a deal, the phase 2 sequester cuts take effect and would be much more painful than the phase 1 cuts were this year. Under the sequester, the 2013 cap on discretionary domestic and military spending is $986 billion. This cap is slated to drop to $967 billion for 2014.

The budget negotiators are proposing spending $1,012 billion in 2013 and $2,014 billion in 2015, claiming deficit reduction of $23 billion over 10 years and smarter budget cutting than the across-the-board sequester’s cuts. However, some of the shrink-the-government diehards are opposed to this increase in spending.

To cut costs, the contributions new federal civilian employees pay into their pension fund will increase and military pensions will receive smaller cost of living increases. To increase revenue, airlines’ fees to pay for the TSA will go up, resulting in a $5 increase in add-on fees on each airline ticket. This consumer fee increase has been criticized and some in Congress have suggested closing the private jet tax loophole as an alternative.

A bone of contention is that the deal does not extend the emergency unemployment benefits for the long-term unemployed. These benefits will expire on Dec. 28 for 1.3 million workers. Without an extension, an additional 850,000 workers’ will lose benefits in the first quarter of 2014. This would have an estimated impact on the economy of 300,000 fewer jobs in 2014 and a reduction in economic growth of 0.4%.

If there are issues in these budget negotiations that you feel strongly about, now is the time to contact your Congress people and get your two cents (or more) into the discussion.

FULL POST: As you probably know, Congress will vote this week on a budget deal for fiscal years 2014 (which started last Oct. 1) and 2015. Their deadline is this Friday because Congress is planning to adjourn and go home for the holidays then. Other deadlines are lurking behind this one: the temporary extension of the fiscal year 2013 budget in October expires on Jan. 15, the second round of automatic budget cuts (phase 2 of the sequester) goes into effective Jan. 1, and long-term unemployment benefits expire on Dec. 28.

If the budget deal doesn’t pass, the government would shut down again on Jan. 15, a result almost no one appears to want. The deal could fail to pass in Congress because the negotiating has been done by a small group and there is opposition to the deal from multiple sides. [1]

Without a deal, the phase 2 sequester cuts would take effect and would be much more painful than the phase 1 cuts were this year. Many federal agencies and programs were able to use surplus or reserve funds that are now exhausted. In the case of air traffic controllers, airport construction funds were used to fund them and aren’t available again. And some one-time accounting maneuvers were used. Therefore, the second round of cuts will have much greater impacts. [2] The phase 2 sequester cuts in government spending would also hurt the economy and cost an estimated 800,000 jobs in 2014. [3]

Nonetheless, a number of issues could derail the budget deal. One such issue is the overall spending caps currently in place under the sequester, officially known as the Budget Control Act (BCA) of 2011. The 2013 cap on discretionary domestic and military spending is $986 billion. This cap is slated to drop to $967 billion for 2014.

The budget negotiators are proposing spending $1,012 billion ($1.012 trillion) in 2013 and $2,014 billion in 2015. Military spending would be $521 billion and non-military spending $492 billion. [4][5] With some offsetting revenue increases and future cuts in spending, they are claiming deficit reduction of $23 billion over 10 years and smarter budget cutting than the across-the-board sequester’s cuts. [6] However, some of the shrink-the-government diehards are opposed to this increase in spending. Spending that Obama called for in his State of the Union speech on education and infrastructure (in part to create jobs) is not part of the budget deal.

To cut costs, the contributions new federal civilian employees pay into their pension fund will increase ($6 billion over 10 years). This is causing some pushback given that federal workers have already experienced a 3 year pay freeze, unpaid furloughs due to the sequester, and delays in receiving their pay during the government shutdown. [7] Military pensions will receive smaller cost of living increases ($6 billion over 10 years). A cut in payments to Medicare health care providers is extended 2 years to 2023 ($23 billion). [8] Costs of mineral leases and petroleum extraction research will also be cut.

To increase revenue, airlines’ fees to pay for the Transportation Security Administration (TSA) will go up, resulting in a $5 increase in add-on fees on each airline ticket. This consumer fee increase has been criticized and some in Congress have suggested closing the private jet tax loophole as an alternative way to raise revenue. [9] Companies’ premiums for insuring pension plans will increase, however, the closing of corporate tax loopholes, including the use of offshore tax havens (which alone could generate over $20 billion a year in revenue), that some in Congress had called for, are not part of the deal. [10]

A bone of contention is that the deal does not extend the emergency unemployment benefits for the long-term unemployed. These benefits will expire on Dec. 28 for 1.3 million workers who have been out of work for longer than the usual 26 week limit on benefits. An extension of benefits would cost $25 billion for 2014. Not only do such benefits help the workers and their families, but they also support the economy by helping to maintain household incomes and consumer spending, which is two-thirds of our economy. [11] Without an extension, an additional 850,000 workers’ will lose benefits in the first quarter of 2014 when their regular 26 weeks of benefits run out, and 4.8 million workers would be affected by expiring benefits over the course of 2014. This would have an estimated impact on the economy of 300,000 fewer jobs in 2014 and a reduction in economic growth of 0.4% (from a current level of 2.4% for 2013) in the first quarter of 2014. [12] Some Democrats would still like to see this in the budget deal, while others are planning to push it separately in the near future.

Although unemployment is down to 7.0%, long-term unemployment is still a serious problem. Furthermore, the emergency long-term unemployment benefits were started under President George W. Bush when unemployment was only 5.6%. Over 37% of the unemployed have been unemployed for over 26 weeks, and this percentage is still rising. [13]

If a budget deal is successfully passed by Congress and signed by the President, it will be the first official budget since 2011. However, a number of issues could present challenges to passage in the House or the Senate.

If there are issues in these budget negotiations that you feel strongly about, now is the time to contact your Congress people and get your two cents (or more) into the discussion.


[1]       Everett, B., & Gibson, G., 12/8/13, “Budget talks worry those not in the room,” Politico

[2]       Taylor, A., 11/12/13, “Mandated cuts expected to be more painful in ’14,” The Boston Globe

[3]       Montgomery, L., 12/6/13, “Congressional GOP may be willing to let emergency unemployment benefits lapse,” The Washington Post

[4]       Weisman, J., 12/11/13, “Congressional negotiators reach deal on federal budget,” The Boston Globe from The New York Times

[5]       Przybyla, H., 12/11/13, “Budget deal easing spending cuts faces Republican ire,” Bloomberg

[6]       Weisman, J., 12/6/13, “Congress appears near a modest accord on the budget,” The Boston Globe from The New York Times

[7]       Montgomery, L., 12/9/13, “Budget deal expected this week amounts to a cease-fire as sides move to avert a standoff,” The Washington Post

[8]       Espo, D., & Taylor, A., 12/10/13, “Congressional negotiators reach budget pact,” The Boston Globe

[9]       Przybyla, H., 12/6/13, “Budget negotiators seek limited deal as opposition mounts,” Bloomberg

[10]     Tong, J., 12/5/13, “Representatives Doggett and DeLauro introduce legislation to end sequestration and corporate offshore tax havens,” Common Dreams (www.commondreams.org/newswire/2013/12/05-4)

[11]     Krugman, P., 12/8/13, “The punishment cure,” The New York Times

[12]     Lowrey, A., 11/17/13, “Extension of benefits for jobless set to end,” The New York Times

[13]     Needham, V., 12/8/13, “Advocates see hope for renewal of unemployment benefits extension,” The Hill

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2 comments

  1. Hazzard, Jane · · Reply

    Hi John,
    Who and how do I contact my congress person? Aren’t our Democratic reps already good on this?
    Jane

    1. Jane,

      Your Congress people from Massachusetts are good on the budget issues. However, I have contacted mine and urged them to include extension of unemployment benefits in the budget deal or ensure that it is addressed NOW, before Congress recesses so that 1.3 million American workers don’t lose benefits on 12/28. NOT a nice holiday present! Also, you could note that no corporate tax loopholes are closed or corporate welfare cut, and that these could easily pay for the extension of unemployment benefits. Or share your thoughts on other relevant issues.

      Even for Congress people who are good on the issue, it is important for them to hear from constituents, because you know they are hearing from others who would like them to shift their positions away from support for middle and low income families – such as the pushback Sen. Warren received on her eloquent support for strengthening Social Security.

      You can find contact information for your US Rep at http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

      John

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