The Deal’s Done: What’s in the Budget Agreement

The Deal’s Done: What’s in the Budget Agreement

by Jessica Schieder, 10/30/2015

Early this morning, the Senate passed a two-year budget deal, that President Obama is expected to sign soon.  It would:

  • Avoid a government shutdown this December
  • Partially alleviate across the board cuts for two years, and
  • Avoid a government default by lifting the debt ceiling through March of 2017.

The government will stay open.

The federal government’s fiscal year begins on October 1st every year. This year—as has often occurred in recent years—Congress had not agreed to the federal government’s operating budget before that date. To avoid a government shutdown, a short-term continuing resolution (or “CR”) was passed, which kept the federal government’s budget on cruise-control until December 11. This gave legislators extra time to find a consensus and avoid a government shutdown.

Since the beginning of October, legislators have been working behind the scenes to strike a deal that would also be acceptable to the White House. The deal they reached sets up a budget framework, but legislators still have significant details to work out. Disagreements over how funding is distributed between programs and the addition of ideological policy riders (i.e. limiting environmental regulation) could pose a threat to the deal.

Across the board cuts to domestic investments have been alleviated for two years.

A set of across the board cuts—collectively referred to as sequestration—have restricted spending severely in recent years. The budget deal lifts those caps, providing partial relief to programs that have already had tight budgets for years. This relief is evenly split between defense and domestic programs—providing $25 billion to each category of programs in fiscal year 2016 (and $15 billion to each category in fiscal year 2017), as the below chart shows.

In addition, the deal increases funding within the Overseas Contingency Operations account which falls outside the budget caps by $16 billion, which is divided evenly between defense and domestic funding categories. (These fiscal year 2016 spending levels for the Overseas Contingency Operations account will be locked in for fiscal year 2017.) In total then, the deal provides an additional $33 billion to domestic programs in fiscal year 2016.

This relief is a huge step in the right direction. Budget cuts in recent years have put immense pressure on programs impacting everything from environmental protection to education. Overall domestic funding is set to force investments in domestic programs to historic lows over the next few years as a percentage of the economy. While the budget deal will not undo these cuts, the deal eliminates 90 of the planned cuts that would have taken effect in fiscal year 2016 and 60 percent of the cuts that would have taken effect in fiscal year 2017 without action. Additionally, the deal does not include any ideological policy riders that could potentially jeopardize the public’s access to clean air and water, women’s access to reproductive healthcare, or environmental conservation efforts.

The government agrees to continue paying the bills it has accumulated past November 3rd.

The United States has a relatively unique mechanism called the debt ceiling, or debt limit. Essentially— while they are free to design and write the nation’s budget— legislators must give separate permission to the U.S. Department of the Treasury to accumulate any resulting debt. We have raised the debt limit 78 times since 1960—including 49 times under Republican administrations and 29 times under Democratic administrations.

If Congress was ever to fail to raise the debt limit, it could cause huge economic instability in the United States and around the world. Essentially, the United States would be refusing to pay for the debt it’s accumulated. The move would cause the U.S. government to default on its legal obligations, and it would shake the world’s trust in the U.S. dollar and the U.S. financial system, likely costing a huge number of American job losses.

The nation is currently estimated to hit the debt limit on November 3rd. Included in the budget deal is an increase of the debt ceiling— eliminating a politically manufactured debt crisis until March of 2017.

Is the deal perfect?

Of course not.

While 20 percent cuts to Social Security Disability Insurance for 11 million recipients were avoided in the near term, those cuts were only pushed off until 2022. Additionally, a provision of the Affordable Care Act that would’ve required employers with more than 200 employees to enroll employees in a health plan was eliminated. In turn, an estimated 675,000 more people will remain uninsured. Finally, additional revenue is necessary to make needed investments in our nation’s future. This deal fails to ask the wealthy and corporations to pay their fair share towards shared prosperity.

“This budget does not close a single tax loophole benefiting corporations or the wealthy. Closing loopholes would not only force them to pay more of their fair share, but it would provide revenue needed for new investments to improve education, repair crumbling roads and bridges, and invest in research for new medical cures,” said Frank Clemente, Director of Americans for Tax Fairness of which the Center for Effective Government is a member.

Nonetheless, the deal is a positive development. It prevents more severe cuts to programs that Americans depend on every day at a time when too many Americans are living on the edge.

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