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Monday, September 01, 2014         

NEW YORK TIMES


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A Washington puzzle: Solving 3 fiscal disputes

By John Harwood

New York Times

POSTED:



WASHINGTON » On the endgame for the budget showdown looming in Washington this fall, only this is clear: President Barack Obama thinks Republicans cannot risk another debt crisis or government shutdown, and Republican leaders agree.

That consensus suggests that the odds of an economy-damaging stalemate are relatively low, despite rising jitters in the capital. Yet everything else about how the White House and congressional negotiators will try to strike a deal, and then coax majorities to approve it, remains opaque.

"Even those of us quite close to it have a hard time saying how the movie ends," said Rep. Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee.

The showdown encompasses three interlocking fiscal disputes that will challenge Obama and his Republican interlocutors to bridge seemingly irreconcilable goals.

Perhaps easiest to resolve is the effort by some conservative Republicans to eliminate financing for the new health care law in return for keeping the government open beyond Sept. 30, the end of the fiscal year. As expected, Obama is unyieldingly opposed to undercutting his signature domestic policy achievement.

The House Republican leader, Eric Cantor of Virginia, has already rejected the Republican strategy as doomed to fail. Most Senate Republicans have not signed on, and Sen. Richard M. Burr of North Carolina has called it "the dumbest idea I've ever heard." Even one supporter, Sen. Rand Paul of Kentucky, recently suggested that the threat was simply a tool to provoke negotiations.

A second challenge is determining the fate of the across-the-board budget cuts known as the sequester if Congress avoids a shutdown by extending government financing.

Republicans remain adamant that the level of budget cuts required by the sequester, about $90 billion per year, be continued. But with increasing complaints about the effects of those cuts on the Pentagon and elsewhere — shown by House Republicans' inability to pass their own transportation spending bill last month — some party leaders want to rearrange the burden of those cuts so they fall instead on entitlement programs like Medicare and Social Security.

The White House and congressional Democrats, however, rule out that trade, except as part of a larger long-term deal that also includes new tax increases. And Republican resistance to tax increases, which has precluded such a "grand bargain" in recent years, has stiffened since the Bush tax cuts for top-earning Americans expired at the end of 2012.

The third challenge may be the most worrisome. While the sequester pinches particular constituencies, and a government shutdown would inconvenience millions, economists warn that a default resulting from a failure to raise the government's debt limit could tip the economy back into recession.

That challenge also appears, at least on the surface, the most intractable. Speaker John A. Boehner of Ohio has reiterated that Republicans will not raise the debt limit without offsetting spending cuts.

Boehner's demand would require fewer cuts than during the 2011 debt crisis, when the debt ceiling needed to rise by about $110 billion per month to avoid default. That amount has shrunk to around $70 billion, according to the Bipartisan Policy Center, because the top-end tax increases and revenues from a stronger economy have helped shrink the deficit substantially.

But Obama, burned by the downgrade of the U.S. debt rating after those 2011 negotiations, insists that he will not negotiate on the issue this time. It is as imposing a fiscal puzzle as veterans of Washington budget fights have seen in years.

"This is, for me, very, very difficult to figure out," said Stephen Bell, a longtime Senate Republican budget aide now at the Bipartisan Policy Center.

No formal negotiations have begun, although the White House chief of staff, Denis R. McDonough, has been meeting with a few Senate Republicans in search of common ground.

Congressional aides have also started exploring potential stopgaps. They begin with a temporary extension of government funding to allow budget talks to continue through year's end.

Under one situation sketched out by Democrats, temporary funding for discretionary programs like Pentagon spending would be set just less than $1 trillion — closer to the $967 billion in the House Republican budget than to the $1.058 trillion in the Senate Democratic budget.

The aim of negotiations after that would be to come up with new savings approaching $200 billion.

Part of the savings would come from entitlements, but programs like farm subsidies, rather than the more politically volatile Social Security and Medicare. Part would come from new revenues, but "user fees" tied to special government services, rather than broad-based tax increases.

That could allow both sides to tell key constituencies that they did not violate core principles. And it would be enough to replace the sequester cuts in military and domestic programs for about two years, without increasing the deficit.

It would not, however, allow Republicans to argue that they achieved their own condition for raising the debt limit. On this issue, both sides are counting on bitter memories from the 2011 crisis, which damaged the Republican Party's reputation, to help Boehner and Cantor rally enough of their caucus to vote "aye."

One path would be returning to the mechanism that the Senate Republican leader, Mitch McConnell, came up with in 2011, which allows most lawmakers to vote against a higher debt limit if the president takes responsibility for raising it.

Another path is the option Republicans accepted temporarily earlier this year, which simply suspended enforcement of the debt limit without raising it.

A third is linking a debt limit increase to the effort to achieve a different, if potentially quixotic, Republican priority: overhauling the federal tax code.

None of that would go down easily for conservative Republican activists, who in the early days of the current congressional recess have urged their lawmakers to fight.

Some Republicans point, if sometimes nervously, to the shared determination of their leaders to avoid political damage as they seek to hold the House and recapture the Senate in 2014.

"There are two things they all agree on: you can't shut down the government, and you can't default on the debt," said Rep. Tom Cole, R-Okla. "At some point, leaders have to lead."






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