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What You Need To Know About The Budget Deal

By Bryce Covert on December 11, 2013 at 8:34 am

"What You Need To Know About The Budget Deal"

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Paul Ryan, Patty Murray

CREDIT: AP

Late Tuesday night, Sen. Patty Murray (D-WA) and Rep. Paul Ryan (R-WI) announced that they had come to an agreement on a budget deal, ending negotiations begun as part of the agreement to re-open the government in October. The deal still has to be passed by the House and Senate and then implemented by appropriations committees by January 15. Here’s what you need to know about what’s in the Murray-Ryan agreement:

It increases spending levels to partially undo sequestration: Without a deal, another round of automatic sequestration cuts were set to take place at the beginning of next year, and they would have brought more damage than they did this year. The deal partially repeals those cuts for fiscal years 2014 and 2015. Under sequestration, discretionary spending would have been capped at $967 billion next year, but with this agreement it would instead be set at $1.012 trillion next year and $1.014 trillion in 2015. That includes $63 billion in relief from sequestration split evenly between defense and non-defense programs, setting defense discretionary spending for 2014 at $520.5 billion, or a $2 billion increase over last year, and non-defense spending at $491.8 billion, a $22 billion increase. Such a funding level would mean “nearly erasing” sequestration cuts for the Pentagon, according to the New York Times. The deal also extends a 2 percent cut to Medicare from sequestration, which should alleviate the cuts to other non-defense programs.

But the deal doesn’t appear to address the cuts that ravaged many programs this year. In a statement, Kris Perry, executive director of the First Five Years Fund, said, “While the deal addresses some future impacts of sequestration on Head Start, it can’t do anything to undo the damage to the 57,000 young children who were deprived of the opportunity to attend a Head Start program due to sequestration.” Other people were kicked out of programs, including Meals on Wheels, Section 8 housing voucher assistance, and homelessness assistance. Some schools had to close and some scientists had to halt their research projects or fire staff.

It raises some revenues as an offset, but none through the tax code: The deal raises $65 billion in additional revenue to offset the higher spending levels that ease sequestration, but none of it comes through higher taxes. Instead, it comes from $12.6 billion in higher security fees for air travelers, $8 billion from having federal workers pay higher premiums for private pensions, $6 billion in lower payments to student loan collectors, and $3 billion in savings from not completely refilling the strategic petroleum reserves. The higher pension payments would be split evenly between military retirees, who would see lower cost of living increases for those between age 40 and 62, and civilian workers who start after the end of the year, who would have to contribute 1.3 percent more to their retirement funds. Rep. Chris Van Hollen (D-MD) told the Washington Post that current federal workers wouldn’t be affected.

The extension of the 2 percent cut to Medicare providers, which will last through 2023, would also bring in revenue. In all, the agreement would reduce the deficit by between $20 and $23 billion.

It avoids one crisis but not another: The deal would avoid another government shutdown early next year by funding the government through 2015. But it doesn’t address the debt limit, which will have to be raised sometime in late February or March. The agreement to end the government shutdown suspended the debt limit until February 7. Republicans have repeatedly pushed the government to the brink of crisis to made a variety of demands.

It leaves some issues unresolved: Democrats had suggested they might push to include an extension of unemployment benefits in the deal, but it doesn’t make an appearance in the Murray-Ryan plan. Without Congressional action, 1.3 million people who have been out of work for about six months or longer will abruptly lose unemployment insurance by the end of the year. The states cut off benefits around 26 weeks, so the federal government has reauthorized a program to extend them past that point 11 times. A failure to extend the benefits won’t just hurt those who rely on them, but will also cost the economy as many as 240,000 jobs and 0.4 percent of GDP.

Meanwhile, those hoping for a grand bargain will have to look to the future for hope of cutting or reforming entitlement programs like Social Security or Medicare and for a comprehensive overhaul of the tax code. And Congress still has to resolve a fight over the farm bill and how much they want to cut the Supplemental Nutrition Assistance Program, or food stamps, by the end of year deadline.

Its future is not certain: The deal now has to pass in the House and Senate, with the House expected to take it up first. But it’s not clear how it will fare. Some House Republicans had written a letter to their leadership ahead of the deal urging them to keep sequestration in place, and in the Senate Marco Rubio (R-FL) has already come out against the deal. A handful of other Republicans have previously voiced their support for sequestration. The deal was also condemned by conservative groups such as the Heritage Foundation and Americans for Prosperity.

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