Overview:  Just in time for the holiday season: a truce in the ongoing budget battle between Republicans and Democrats.  As we have noted, this battle began during the debate and passage of the Budget Control Act of 2011, which mandated $1.2 trillion in domestic and defense spending cuts from fiscal years (“FY”) 2012 through 2021, with only certain programs such as Social Security and Medicaid exempted (Public Law 112-35).  A number of budget standoffs have occurred since then over how to best fund the government’s operations, with the only notable results being a decrease in the nation’s credit rating; a 16-day partial government shutdown; and an approval rating for Congress in the single digits.  For all these reasons – and likely most importantly the latter – the Republican-led House of Representatives and the Democratic-led Senate have agreed to a two-year budget resolution that will allow it to avoid the short-term spending deals that have only come after massive pain.  However,  H.J.Res 59, the Bipartisan Budget Act of 2013 (“Act”) only delays the pain of sequestration; it does not replace it with a long-term tax and spending deal.

One thing is clear:  No one likes sequestration.  After some delay and reduction of cuts, as a result of budget savings, the sequestration process began March 1 with $85 billion in spending cuts equally divided between defense and non-defense.  Screams of outrage were heard from a number of federal agencies, from the Defense Department to the EPA.  As we noted, the question was whether the outcry that accompanied the close-to $1 billion in spending cuts was enough for Members of Congress and the President to agree on a different combination of spending cuts and tax increases for FY 2014 and beyond.  It turns out the answer is a qualified “Yes.”

The Bipartisan Budget Act of 2013:  More discretionary spending up front.  More spending cuts and fee increases down the road.   With a deadline for a budget deal of December 13, House Budget Chair Paul Ryan (R-WI-1) and Senate Budget Chair Patty Murray (D-WA) have produced a two-year budget resolution that provides relief from the cuts of sequestration for FY 2014 and 2015 in exchange for a combination of spending cuts and user-fee increases.  The Act would provide $63 billion in “sequester relief” by increasing defense and non-defense spending by $45 billion for FY 2014 and $18 billion in FY 2015 above the figures required under the Budget Control Act.  To offset the additional spending in the next two years, the Act would include a number of spending cuts and increases in user fees that would take effect over the next 10 years, including a change in cost-of-living adjustments for certain military retirees and an increase in airline security fees.  The Act also includes $22 billion to $23 billion in additional deficit reduction, beyond what was required by the Budget Control Act.

Not a long-term replacement to sequestration.  The Act sets limits on what Congress allows itself to spend.  Now that it has passed both the House and the Senate, by votes of 332-94 and 64-36 respectively, appropriators can start moving forward on the 12 spending bills needed to fund the government’s operations (which should already have passed both houses and been signed by the President by October 1).  (Even with this success, there’s a sizable minority of members in both houses who opposed the Act and may likely seek to enact changes in these subsequent spending bills).  The significance of Congress finally being able to do its job and put a budget in place, and not a series of continuing resolutions, is important.  But we note that this is not a long-term spending deal, to take the place of the automatic cuts of sequestration.  Congress still needs to decide whether to put a long-term tax and spending plan into place or allow future sequestration cuts to take place.  And looming over all these decisions is the growing federal debt.  The Congressional Budget Office projects that even with the sequestration cuts in place, the federal debt held by the public will reach 100 percent of our nation’s Gross Domestic Product by 2038.  So don’t pop the champagne corks yet.