On October 16, Congress brought over two weeks of government shutdown to an end, voting to extend the FY 2013 levels of appropriations ($988 billion) through January 15.  The legislation also pulled the nation back from the brink of default on its debts, by suspending the statutory limit on federal borrowing until February 7.  The shutdown is gone, but not likely to be forgotten.  The Council of Economic Advisors estimated the 16-day shutdown cost 120,000 jobs.
The end of the self-inflicted crisis came with strongly bipartisan votes:  81 to 18 in the Senate,  with 27 Republicans joining all Democrats in favor; and in the House, 285 – 144, with 87 Republicans joining 198 Democrats in favor.  The votes demonstrated that the extremists who shut down many government functions are a decided minority.

A Conference Committee to Try for an Agreement:  The Continuing Appropriations bill (H.R. 2775) also called for the creation of a conference committee to finally resolve the differences between the House- and Senate-passed budget resolutions.  The stark differences between the two resolutions had stymied efforts even to name a conference committee in the past.  A key difference was in the total assumed for appropriations.  The Senate resolution called for ending sequestration cuts in FY 2014, funding appropriated programs at $1.058 trillion, the level set by the Budget Control Act (the deficit reduction law passed in 2011, which set spending limits for ten years, to be made still lower through sequestration cuts if Congress failed to reduce the deficit by a specified amount by any other means).  The House, on the other hand, assumed that sequestration cuts would continue, and so provided only $967 billion.  The House departed from the requirements of the Budget Control Act by protecting Pentagon spending, shifting the required cuts to domestic and international programs.

The Continuing Appropriations bill directs the conference committee to come up with a resolution of these and other differences by December 13.  If they can settle on an appropriations total, it would then fall to the Appropriations Committees to approve one or more spending bills with program-by-program decisions in time for the January 15 expiration of the current stopgap spending bill.

The conference committee is chaired by Representative Paul Ryan (R-WI), who is chair of the House Budget Committee.  Vice-Chair of the conference is Senator Patty Murray (D-WA), who chairs the Senate Budget Committee.  The full conference committee consists of 29 members – 7 from the House and 21 from the Senate (the entire Senate Budget Committee).  The lopsided nature of the committee does not matter, because conference committees approve legislation by getting majority support from the conferees from each chamber.  The first public meeting of the conference committee is scheduled for October 30, with members only expected to present opening statements.   The real work of the conference committee will be done in private negotiations by the Chairs Ryan and Murray, perhaps with participation by the ranking members Chris Van Hollen (D-MD) in the House and Jeff Sessions (R-AL) in the Senate.   That is, if negotiations are really possible – an open question at this point.

Grand Bargain or Small Deal:  The scope of the negotiations had been the subject of speculation at the outset:  could they agree upon a ten-year replacement of the sequester cuts?  That kind of “grand bargain” has now been generally acknowledged to be out of reach.  Instead, most observers think the best the conferees will manage is a deal that reduces or eliminates the sequester cuts for one or two years.  Even that is fraught with difficulty, since Democrats and the Obama Administration strongly favor including increased revenues to replace the savings lost by ending the sequester cuts.   Republicans have opposed increasing taxes and have supported replacing the sequester cuts with cuts to programs like Medicare, Medicaid, Social Security, and/or SNAP/food stamps.

Bridging the Divide on Revenues:  During earlier abortive deficit reduction negotiations, Democrats were willing to put certain entitlement cuts on the table, but insisted that those be accompanied by revenue increases.  Republicans, at least since agreeing last January to allow $600 billion in tax breaks to expire for the wealthiest individuals, have not been willing to consider revenue increases.  That may be changing.  Rep. Tom Cole (R-OK) has voiced a willingness to consider increased revenues, as has Senator Lindsey Graham (R-SC).  However, they are talking about more revenues from economic growth, selling public property, or through short-term gimmicks that provide advantages to companies that bring profits that had been sheltered abroad back to the United States.  Critics of this approach point out that it may produce some revenues at the outset, but loses revenues in the long-term.  An alternative that more effectively closes loopholes used by companies now hiding profits offshore has been developed by Senator Carl Levin (D-MI).  His bill, the Stop Tax Haven Abuse Act (S. 1533) would raise $200 billion over 10 years by preventing offshore tax avoidance schemes, enough to end sequestration cuts for two years.   Whether closing loopholes like these could be part of a deal is not yet known.

The strong stance of Democrats in favor of revenues, following Democrats’ unity in staring down extreme demands leading to the government shutdown, has perhaps created some openings for considering some form of revenue increases.  But it has been reported that the President distinguished between a long-term deal, which he said must include revenue increases, and a short-term one, where his position was less clear.  Weakening the negotiating position could jeopardize efforts to prevent harmful cuts in entitlement programs.

Or Not:  If the December 13 deadline is reached without agreement, Congressional leaders will have to continue to work to avoid another government shutdown when funding expires on January 15.  Another year of sequestration cuts would take effect automatically on January 15, triggering about $20 billion in cuts, down to an annualized $967 billion.  Because military spending had previously been increased above the levels originally called for by the Budget Control Act, the $20 billion cut would be made to military spending; domestic discretionary spending would not need to be further reduced.  That is not a satisfactory outcome, since it means Head Start will continue to serve at least 57,000 fewer children than in 2012, more than one hundred thousand rental housing vouchers will be lost and/or rents will rise further for poor tenants, and fewer meals will be served to needy seniors, to name a few prominent examples of sequestration’s impacts.  Proponents of military spending do not like the additional $20 billion cut.  Republican members of the House Armed Services Committee sent a letter to Chairs Ryan and Murray strongly opposing continuation of the Pentagon sequester cuts.  They sought reductions in mandatory spending instead, but also said “The members of this committee believe that everything should be on the table in order to address our Nation’s deficit spending.”  If “everything” includes revenues there may be some grounds for negotiation.

In the absence of legislation to end or reduce sequestration cuts or to pass new spending bills, some in Congress would fall back on providing greater flexibility to agencies to shift funds to manage the cuts better.  That too would be an unsatisfactory outcome for domestic programs, when sparing one service is likely to mean more harsh cuts elsewhere.

Debt Limit:  As noted above, the limit on federal borrowing was suspended through February 7, although H.R. 2775 allows the Treasury Department to use “extraordinary” measures to juggle debt payments so that borrowing authority would likely extend at least into March.  If no further increase in borrowing authority is made by then, the nation will be back at the brink of economic catastrophe, an outcome only an extreme few in Congress want to risk.  Whether the debt limit will be increased as part of a larger budget agreement or dealt with separately is not yet known.

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