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What a small-ball budget deal could look like

Congress is looking through the couch cushions to scrape together enough for a budget deal that avoids controversial changes to entitlements and taxes.
/ Source: MSNBC TV

Congress is looking through the couch cushions to scrape together enough for a budget deal that avoids controversial changes to entitlements and taxes.

How do you solve a problem like sequestration? 

Democrats, along with some Republicans, are desperate to reverse the across-the-board cuts. But in the current political climate, that means the cuts have to be replaced with savings elsewhere. So Congress is now digging through the couch cushions to scrape together enough for a deal—one that might pass because it avoids controversial changes to entitlements and taxes that have deadlocked Congress for more than two years already.

Call it the workaround strategy: A deal built on incremental reductions to mandatory spending that don't touch Social Security or Medicare, together with new revenues that aren't classified as tax hikes.

This approach could allow both parties to save face with a deal that doesn't technically violate either of their bottom-line demands: Democrats' refusal to cut entitlements without significantly increasing tax revenue, and Republicans' refusal to back tax hikes—the core disagreement that triggered sequestration in the first place when a bipartisan congressional "supercommittee" failed two years earlier. 

A bare-bones deal would fund the government for the next 8.5 months—from mid-January to the end of the 2014 fiscal year in September—whille reversing some of the sequestration cuts. Replacing the automatic discretionary cuts for 2014 would require finding more than $100 billion in savings, and Hill watchers are skeptical that Congress can even find that much.

"I can't see more than $30 to $50 billion in offsets,"  says Bill Hoagland, senior vice-president of the Bipartisan Policy Center.

Others are even less hopeful. "Honestly, zero's a very realistic scenario, but I'll optimistically go with around $30 billion as my bet," says Loren Adler, research director for the Committee for a Responsible Federal Budget, which has briefed legislators involved in the negotiations. The most optimistic scenario would be a two-year replacement for sequestration, which would still leave $110 billion in cuts ever year until 2021.

Those close to the negotiations led by Democratic Sen. Patty Murray and GOP Rep. Paul Ryan say it's less about hitting a specific target number than looking for any and all potential building blocks for a politically feasible deal. 

Right now, Republicans "are looking for ways to raise revenues without raising rates," says Hoagland, a former Senate budget staffer who has recently met with Congressional Republicans. Hikes to user fees are one possibility: Last year, Republicans overwhelmingly supported a bill that increased FDA approval fees for generic drugmakers. President Obama's own budget includes a hike to airplane passenger security fees from a current mininum of $2.50 to $5.00, increasing it to $7.50 by 2019, generating $26 billion over 10 years. Another proposed change would charge private planes $100 for flying in controlled airspace. 

There are a host of other user fees that could be in the mix as well, says Hoagland, including fee hikes for visas, passports, and border-crossings; other drug and patent fees; expanded drilling for gas and oil; and new fees for using abandoned mines, inland waterways, and nuclear facilities, which are included Obama's budget. 

Some Republicans have also backed spectrum fee hikes for wireless companies, new spectrum auctions, and the sale of federal assets to generate revenue. "That could be part of this," Sen. Rob Portman told msnbc after the first official budget conference last week.

While they aren't technically tax hikes, there are still major political obstacles to most of these proposals, which would place the burden of replacing sequestration directly on ordinary people and businesses. The aviation lobby, for instance, already has its claws out to fight new user fees, which haven't generated much enthusiasm in either party. Murray has made it clear that she would prefer to "scour the bloated tax code," having previously pushed to eliminate tax breaks for corporate jets, yachts, vacation homes, and other expenditures.

And Ryan still isn't publicly backing these kind of revenue-raisers yet. "He believes the best way to raise revenue is to grow the economy. We should not take more from hardworking families to spend more in Washington," Ryan spokesman Will Allison told msnbc. And the least controversial revenue proposals also don't generate that much money: Spectrum user fees and auctions would only raise about $5 billion, for instance, as would fees for using abandoned mines, waterways, and nuclear facilities, according to the CRFB. 

On the spending side of the budget, Republicans and Democrats have called for reforms to the federal employees' pension program, a mandatory entitlement program. Last month, Ryan reiterated his call to "ask federal employees to contribute more to their own retirement," proposing to raise their pension contributions to generate some $132 billion over 10 years; Obama has a more modest proposal that would raise an estimated $20 billion. Obama has also backed raising military TRICARE fees, which Republicans reportedly floated along with federal pension reform during the shutdown negotiations. 

Farm subsidies could also be another source of savings. Both the House and Senate have passed bills eliminating direct payments to farmers, though the farm bill has stalled over the House GOP's steep proposed cuts to food stamps. Rep. Colin Peterson, the ranking House Democrat on the Agriculture Committee, staunchly opposes merging the farm bill with the broader 2014 budget talks. But as the budget deadline creeps closer, lawmakers may become more eager to find savings and "take credit for something that's going to happen anyway," says Hoagland.

The overarching problem is that a "workaround deal" could punish very specific groups: Pilots, travelers, immigrants, federal employees, veterans, and specific private industries, some of which have powerful lobbyists and advocates in Congress. And the likely savings will be pocket change compared to major entitlement and tax reforms that legislators have deliberated: Chained CPI for Social Security, for instance, would generate $275 billion in savings over the next 10 years, while the tax hikes in the fiscal cliff deal raised $600 billion. 

If Congress can't even come up with a small-ball deal as the deadline approaches, there's still one other alternative at hand, though no one likes to talk about it: As during the fiscal cliff deal, it could turn to gimmicks that save money on paper while costing taxpayers in the long run.