The Incredible Shrinking Budget Talks

Posted October 28, 2013 at 4:55pm

Grand bargains are out. Tax hikes are out. Short-term and stopgap solutions are very much in.

That’s the reality in Washington this week, as budget conferees meet for the first time Wednesday to try to hammer out a deal.

Publicly, the White House and top Democrats are still talking about a “balanced” plan requiring new revenue as part of a long-term budget blueprint that would replace the sequester and tackle the nation’s long-term debt challenges.

But almost no one expects that to happen.

Not Senate Majority Leader Harry Reid. Not House Budget Chairman Paul D. Ryan.

Last week, the Nevada Democrat and the Wisconsin Republican lowered expectations by ditching the grand bargain talk. Ryan told reporters that tax hikes aren’t going to be in the deal; Reid cited the GOP’s opposition to more tax hikes on the wealthy as a reason people should stop talking about cutting Social Security or Medicaid.

The focus instead will be on forging a deal that can replace some of the sequester spending cuts — perhaps for just a year or two — and un-sticking the mess that has become the annual appropriations process.

Both sides have at least some incentive to get a deal. An agreement would give Republicans a chance to change the post-shutdown political narrative that they can’t govern. And with big defense cuts kicking in come January, Republican hawks are already pressuring their leaders to find a way out.

Democrats and the White House, meanwhile, have been chafing as the president’s agenda has been squeezed by both the sequester and a gridlocked Congress. If they give in on taxes in a short-term deal, would they settle for one of the unfinished Obama agenda items that has been going nowhere in this Congress, such as a minimum-wage hike, infrastructure spending or universal preschool?

Without revenue or other incentives, getting the Democratic votes needed to pass a compromise budget could prove difficult.

“It’s impossible to say yet if anything not including revenue would get enough support from Senate Democrats to pass,” one senior aide said.

President Barack Obama has been newly open to a short-term sequester fix that doesn’t include a tax hike. Politico reported that he told Republican senators at the White House that he wouldn’t insist on a tax increase in such a deal.

And he has taken to saying lately that any “long term” deal would have to include revenue, leaving open the question of what to do in the short term.

“The president obviously stands by his budget and believes any big package with entitlement reforms must have new revenues,” a source familiar with the White House’s thinking said. “But he did not want to take options off the table with regards to a smaller package before conference committee work was even under way.”

But there seems to be a growing realization among Democrats that the fiscal-cliff deal — which gave Republicans permanent tax cut extensions for 99 percent of the country but failed to deal with the sequester — has now left them little leverage to ask for another tax increase, which would require Republicans to break their no-tax-hike pledges.

To be sure, Democrats will still demand revenue if Republicans want big entitlement cuts in return.

But there are a variety of other items that could be cobbled together for a short-term package like the farm bill— with aides noting various fee increases Republicans have gone along with in the past to spending trims that don’t affect core Medicare, Medicaid or Social Security benefits.

Another Senate aide said Senate Budget Chairwoman Patty Murray, D-Wash., will be very reluctant to agree to any deal without revenue of some kind, lest a precedent be set that would apply to future years.

But without a deal, an even worse precedent for many Democrats could persist — the sequester continuing unabated, year after year.

If the two sides fail to reach a deal by Jan. 15, appropriations will be cut from $986 billion to $967 billion.

Republican aides suggest that if Democrats refuse to approve a spending plan keeping the sequester in place, they’ll be the ones who will get the bulk of the blame for a shutdown.

Senate Minority Leader Mitch McConnell, R-Ky., has clung to the lower spending levels as a key achievement, aides note. And it’s one that many Republicans believe will eventually have Democrats coming to them for relief, rather than the other way around.

Democrats, of course, differ. Their hope for leverage — a point made repeatedly by Rep. Chris Van Hollen, D-Md., the ranking member of the Budget Committee — is that because of a quirk in the law, next year’s sequester cuts will hit defense programs favored by the GOP while domestic programs will essentially remain flat.

“It all falls on defense,” the first Democratic Senate aide said. “I don’t think a lot of Republicans are going to be claiming that as a big victory.”

There are plenty of people on Capitol Hill who don’t think Congress will suddenly find a way to function, even on what amounts to small ball — and who believe they’ll be staring at each other on Jan. 15 hoping the other side blinks.

“Our expectations are low. Unless the president is willing to deal on entitlements, which he hasn’t before, it’s hard to see how there’s any significant agreement that comes out of the budget conference,” one Senate GOP aide said.

Several aides said Republicans will not concede the sequester spending levels and said they believe that any further agreement to fund the government or raise the debt limit would happen outside the confines of the budget conference.

And even if there were a deal replacing the sequester in the short-term, Senate Republican aides wondered if Ryan would be able to sell the higher spending levels to the House GOP.

Meredith Shiner contributed to this report.