A government shutdown grew more likely last week, as House Republicans deferred to their most extreme members and passed a temporary spending bill that would defund the health care law.  Making a headlong run towards the fiscal cliff, the House leadership also started talking about tying delay of the health care law to an increase in the debt limit.  It comes down to this:  extremists may shut down government and sabotage its fiscal integrity in their attempts to cripple the Affordable Care Act (ACA).
The influence of the extremists in the House was clear in the decision of the House leadership to put forward a temporary spending bill with a poison pill permanently defunding the 2010 health care law.  The Continuing Resolution (CR) extends spending on military, domestic and international appropriations at this year’s levels through December 15.  The House estimates the annualized costs of continuing this year’s spending at $986 billion.  This level continues the sequestration cuts begun in 2013.  If spending continues all year at this rate, domestic and international programs subject to appropriation will be cut by 17.8 percent compared to FY 2010.  (For more detail on the proposed CR, see The Approaching Crunch, in the August 7, 2013 edition of The Human Needs Report.)

The Senate and President Obama have both made clear that they will not accept defunding of the health care law.  The Senate will now take up the House bill (H.J. Res. 59) this week, and will move to delete the health care provision.  Senator Ted Cruz (R-TX) has threatened to filibuster to prevent the Senate from passing a version that does not defund the Affordable Care Act.  As a matter of Senate procedure, he will have to filibuster the bill that comes from the House, which is awkward because it contains the defunding provision he favors.  If there are 60 votes to move the bill forward, an amendment to strip the bill of the health law provisions will only require a simple majority.  Most observers believe the Senate will have the 60 votes to end a filibuster and will certainly have a majority to get rid of the ACA cuts.

Senate Appropriations Committee Chair Barbara Mikulski (D-MD) greatly prefers a CR that would last only till mid-November, at least if it is set at only current year funding.  The Senate Democrats and the President oppose permanent funding for FY 2014 at this year’s very low levels; their alternative is $1.058 trillion in appropriations, an amount that does not include continued sequestration cuts.  If a stopgap spending bill lasts until December 15, it is feared that Congress will not come to grips with making the changes needed and will simply keep extending current levels into the new calendar year.  As the months progress, it will be more and more difficult to undo the FY 2014 sequester reductions.  On the other hand, a November 15 deadline leaves more time to negotiate an end to sequestration.

Once the bill is returned to the House with changes including deletion of the ACA defunding, it will be perilously close to the end of the fiscal year.  With only a few days to spare, the House will have to decide (a) if it will insist on dismantling ACA or (b) agree to a cleaner extension.   Plan (a) will shut down much of the federal government.  The Wall Street Journal was not encouraging about this approach in a recent opinion piece:  “Kamikaze missions rarely turn out well, least of all for the pilots.”

A decision to agree to a cleaner extension will require Democratic votes in the House, on the assumption that many disgruntled extremists among the Republicans will vote no.  Getting to a majority may be difficult even without the ACA cuts, because members of the House Progressive Caucus do not want to vote for a spending bill that continues the sequester cuts.  Co-Chairs of the Progressive Caucus, Keith Ellison (D-MN) and Raul Grijalva (D-AZ) are “whipping” their 75 members to urge a no vote on a CR that continues the sequester cuts in this year’s spending.

Deadbeat Nation?  Not limiting their Affordable Care Act threats to a federal government shutdown, the House leadership has also announced plans to tie a set of conditions to a one-year extension of the debt limit.  To authorize the federal government to continue borrowing past November 2014, the House Republican plan is said to require a one-year delay in Affordable Care Act implementation.  It would also include cut proposals that have surfaced in previous deficit reduction negotiations, such as requiring higher contributions towards pension plans by federal workers, repeal of parts of the ACA, cuts in SNAP (see SNAP article in this issue), and charging higher-income Medicare recipients more for their coverage.  Reducing the cost of living adjustment for Social Security (using the “chained CPI”) has also been proposed in the past.  These proposals have all been vigorously opposed by organized labor and other advocates as well as by many Democrats.  The House proposal assumes that a year’s debt limit increase would be about $600 – $700 billion.  They would “pay” for that increase by cuts similar to those just described.

The Administration has been willing to consider some of these proposals in the past, but has said it will not agree to more cuts without an agreement to raise revenues.  The House leadership has told the Republican caucus that the debt limit bill will also include instructions to the tax-writing committees to come up with tax reform legislation.  If similar to language previously adopted in the House, the instructions will probably direct the House Ways and Means Committee to lower tax rates for individuals and corporations and be revenue neutral.  That would mean that revenue losses from reducing rates would be offset by closing loopholes or reducing other tax expenditures, but that there would not be a net revenue gain that could be used to replace sequester cuts or to meet other needs.  Such an approach would not sit well with Senate Majority Leader Harry Reid (D-NV) and many in his caucus.

If Congress does not increase federal borrowing authority by approximately mid-October, the government will be unable to pay all its bills.  The House bill to tie the debt ceiling to the ACA and other cuts could be introduced as early as September 25.  Here too, Democratic opposition will be firm.  In his Weekly Address on September 21, President Obama said “The United States of America is not a deadbeat nation.  We are a compassionate nation.  We are the world’s bedrock investment.  And doing anything to threaten that is the height of irresponsibility.  That’s why I will not negotiate over the full faith and credit of the United States.  I will not allow anyone to harm this country’s reputation, or threaten to inflict economic pain on millions of our own people, just to make an ideological point.”

Economists across the political spectrum have raised alarms about even threatening to tamper with the debt ceiling.  Martin Feldstein, chairman of the Council of Economic Advisors under President Reagan said “The debt ceiling is a very dangerous thing to play with.”  Alan Blinder, former vice chair of the Federal Reserve, said “In short, the consequences of hitting the debt ceiling are too awful to contemplate…A sane Congress wouldn’t even think about it.”  Republicans will have to think hard about how voters will react to this two-pronged threat to the economy.

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