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After two weeks of shutdown, Washington is finally talking about its real disagreements

In shutdown-shuttered Washington, it almost seemed like there was a deal this weekend to raise the debt ceiling and avert a potential US default.

But senate Democrats said there were still too many strings attached.

With bond markets tensing up late last week and public opinion of Republicans plummeting, Republican moderates in the Senate planned a new compromise designed to avoid a potential default after October 17, when the US will have only $30 billion of cash on hand to pay all its obligations. The deal would have funded the government for six months and lifted the debt ceiling, but imposed new obligations for participants in the new health-care law and cut a tax on medical devices, because you can’t have a bipartisan deal without getting special interests involved.

Democrats, who argue that re-opening the government and avoiding a debt default aren’t concessions but just plain common sense, refused the deal. But their main objection to the Republican offer wasn’t that it meddled with the health-care law; it was that it locked in six more months of continuing deep budget cuts, or “sequestration.” These cuts, along with caps on spending, were imposed in a 2011 budget agreement that took effect at the start of this year. Senate Democrats want to keep to the spending caps but get rid of sequestration, using long-term cuts and tax hikes to make up the difference. House Republicans are aiming for spending $19 billion below the sequestration cuts:

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Earlier in this stand-off, senate Democrats had proposed continuing spending at current levels with sequestration for two months, at an annual spending rate of $986 billion, well below their preferred number of $1.058 trillion. But, as Republicans refused to pass the so-called “clean” bill and allowed the continuing stand-off to threaten a US default, Democrats feel their negotiating position is stronger and that half a year is too long to keep spending at levels that most forecasters say are significantly cramping economic growth. Hence their reluctance to take the current deal.

The Democrats do have one significant point in their favor: Throughout the summer, House Republicans were unable to agree, even among themselves, on how to allocate spending within that $967 billion budget. That has undermined their bargaining position and is one of the key reasons they avoided regular budget negotiations to force a showdown.

With the debt ceiling deadline and the on-going shutdown debate now completely enmeshed, Republicans may still succeed in getting their chosen budget level enacted if pressure from the financial markets becomes too strong. But funding the government at that level practically guarantees another shut-down battle when the deal expires.

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