Budget Deal Gives Short-Term Relief, No Long-Term Improvement

A bipartisan agreement could end uncertainty around spending and taxes but doesn’t address entitlements.

Democratic and Republican Party negotiators announced that they had reached a budget deal on Tuesday. If their compromise agreement is accepted in both houses of Congress, it could end some of the uncertainty about government spending and taxes that has dampened growth in the world’s largest economy this year.

The chief negotiators, Democratic senator Patty Murray and Republican congressman Paul Ryan, both described the compromise as a step in the right direction during a news conference in Washington DC. “This bill reduces the deficit by $23 billion, it does not raise taxes and it cuts spending in a smarter way,” said Ryan, who was his party’s vice presidential candidate in last year’s election.

Party leaders and President Barack Obama quickly signaled their support. “This agreement doesn’t include everything I’d like — and I know many Republicans feel the same way. That’s the nature of compromise,” the president said in a statement. “But it’s a good sign that Democrats and Republicans in Congress were able to come together and break the cycle of short sighted, crisis driven decisionmaking to get this done.”

The Murray-Ryan plan raises discretionary spending in the fiscal year 2014 from $967 billion to just over $1 trillion while shifting tens of billions of dollars worth of defense cuts that were planned in previous legislation. It would altogether cut $85 billion in spending, amounting to $23 billion in net deficit reduction.

Mandatory spending, which includes the big health and pension programs that risk becoming unaffordable, isn’t covered under the agreement even if it is budgeted to account for 64 percent of total spending next year.

The cost of entitlements, including the president’s besieged health reform plan, is expected to rise from 9.8 percent of gross domestic product this year to 13.6 percent in 2035. As early as 2025, federal tax revenues could be sufficient to cover only these mandatory spending commitments, even excluding unemployment compensation and leaving nothing for discretionary spending on defense, education and infrastructure.

Republicans have proposed to repeal the president’s health reforms and liberalize state medical care for seniors in order to reduce the rising costs of entitlements. Democrats reject both proposals. They are also unhappy that Tuesday’s compromise does not include an extension in unemployment benefits which are due to expire at the end of this year.