As red ink recedes, pressure fades for budget deal


Rep. Paul Ryan (R-WI), Chairman of the House Budget Committee, at a financial summit May 7, in Washington, DC. Signs of an improving economy mean Republicans could be facing a listless summer, with no leverage to shape a new debt-reduction deal. (Brendan Smialowski/AFP/Getty Images)

After four years of trillion-dollar deficits, the red ink is receding rapidly in Washington, easing pressure on policymakers but shattering hopes for a summertime budget deal.

Federal tax revenue is up and spending is down thanks to an improving economy, tax increases that took effect in January and the automatic budget cuts known as the sequester.

The sunnier outlook means that President Obama will be able to pay the nation’s bills for months without seeking additional borrowing authority from Congress — probably until Oct. 1, according to independent forecasts.

That might seem like good news, but it is unraveling Republican plans to force a budget deal before Congress takes its August break. Instead, the fiscal fight appears certain to bleed into the fall, when policymakers will face another multi-pronged crisis that pairs the need for a higher debt limit and the fresh risk of default with the threat of a full-scale government shutdown, which is also looming Oct. 1.

In the meantime, Republicans face a listless summer, with little appetite for compromise but no leverage to shape an agreement. Without that leverage, House Budget Committee Chairman Paul Ryan (R-Wis.) said Tuesday, there is no point in opening formal budget negotiations between the House and the Senate, because Democrats have no reason to consider the kind of far-reaching changes to Medicare and the U.S. tax code that Republicans see as fundamental building blocks of a deal.


A new Goldman Sachs forecast predicts that the government will not reach its debt limit until early September or October. Part of the variable is whether Fannie Mae and Freddie Mac release tens of billions of dollars to taxpayers. The dotted lines show Goldman Sachs's three predicted debt limit scenarios.

“The debt limit is the backstop,” Ryan said before taking the stage at a debt summit organized by the Peter G. Peterson Foundation in Washington. “I’d like to go through regular order and get something done sooner rather than later. But we need to get a down payment on the debt. We need entitlement reform. We’re very serious about tax reform because we think that’s critical to economic growth and job creation. Those are the things we want to talk about.”

Democrats are urging Republicans to initiate talks well before the next deadline and at last resolve the long-standing dispute over whether to tame the debt solely by cutting spending, as Republicans demand, or also by raising taxes on the wealthy, as Obama insists.

“The American people — all of us — are tired of management by crisis,” Senate Budget Committee Chairman Patty Murray (D-Wash.) said at the Peterson summit. “We need to start working now.”

But senior Senate Republicans, including several who recently dined with Obama and huddled with administration officials, conceded that it may be tough to bring their colleagues to the table too far ahead of the debt-ceiling deadline.

“I think there’s a better atmosphere for a solution than there’s been in the past, but I’m a little worried about people here in the Senate having fiscal fatigue. There isn’t any sense of urgency right now,” said Sen. Bob Corker (R-Tenn.), one of three senators who joined Obama on Monday for a round of golf.

“We need to realize this debt ceiling is out there. It’s inevitable. It’s coming. And [the later deadline] should not relieve pressure,” said Sen. Jeff Sessions (Ala.), the senior Republican on the Senate Budget Committee. But “sometimes we don’t want to act until a gun is at our heads.”

Since 2011, when Republicans gained control of the House and made cutting spending their top priority, Washington has faced a series of economy-rattling showdowns that produced eleventh-hour deals to cut spending, raise taxes and extend the federal debt limit. The most recent came during the year-end “fiscal cliff” fight, when Republicans reluctantly approved more than $600 billion in new taxes on the wealthy over the next decade.

Demoralized by that defeat — it was the first time in more than two decades that congressional Republicans had approved a significant tax hike — House GOP leaders developed a strategy that promised greater success: They would goad Senate Democrats into adopting a budget plan and force them into negotiations, even as automatic spending cuts started to take effect March 1, slashing agency budgets.

Meanwhile, the House took the unprecedented step of suspending the federal debt limit, then set at $16.4 trillion, until May 19. When the debt ceiling goes back into effect next weekend, the limit will automatically be lifted to account for any new borrowing. But Republicans calculated that the Treasury would almost immediately be in trouble again and in need of an even higher debt limit before the August break.

Ryan laid out the strategy for rank-and-file lawmakers at a January retreat in Williamsburg and during listening sessions on Capitol Hill. “These pressure points would come together and force a bargain on the budget,” said a GOP aide, speaking on the condition of anonymity to discuss private meetings. “This was Ryan’s spiel.”

The strategy, however, failed to account for the improving budget outlook. In February, the nonpartisan Congressional Budget Office predicted that this year’s deficit would fall to $845 billion, down from nearly $1.1 trillion in 2012. Goldman Sachs recently predicted that the deficit would fall even further, to $775 billion, and return to sustainable levels within two years.

As a result, the national debt is rising far more slowly than in the frantic days after the 2008 economic crisis: The Treasury Department actually expects to repay a tiny sliver of the $16.8 trillion national debt by the end of June.

Much of the improvement stems from recent budget deals. Over the past two years, Congress has capped agency spending and created the sequester, which is trimming outlays on domestic programs and the military. Lawmakers also agreed to raise taxes on virtually every American this year, letting a temporary reduction in the payroll tax expire and tax rates rise for households earning more than $450,000 a year.

But other factors are at work, too. Defense spending has been declining rapidly with the end of the war in Iraq and the ongoing drawdown of forces in Afghanistan. A surprising — and apparently durable — slowdown in health-care costs has sharply reduced projected spending on Medicare and Medicaid. And the falling jobless rate and improving economy have helped push federal tax collections up 16 percent over last year, according to figures out Tuesday.

As a result, forecasts of the date when the debt is expected to hit the new debt limit have been slipping, from midsummer to late summer to early fall. Forecasters at Goldman and the Bipartisan Policy Center who have been watching the government’s cash-flow situation closely say the Treasury is all but certain to make it to Oct. 1 if Fannie Mae, the taxpayer-owned mortgage giant, and its sibling Freddie Mac turn over tens of billions of dollars as a result of their stronger financial status amid a recovering housing market. A decision is expected this week.

Treasury officials have declined to provide much guidance, citing “forecasting uncertainty.” That could change as May 19 draws near. Meanwhile, the White House has called the date irrelevant, saying that Obama will not negotiate over the debt limit and urging Republicans to act now to broker a debt-reduction deal.

“No one should threaten the default of the United States,” White House economic adviser Gene Sperling said Tuesday at the Peterson summit. “Democrat or Republican, for any reason, no one should use the default of the United States as a budget path or negotiating tool.”

Lori Montgomery covers U.S. economic policy and the federal budget, focusing on efforts to tame the national debt.
Zachary A. Goldfarb is a staff writer covering the White House, focusing on President Obama’s economic, financial and fiscal policy.
SECTION: {section=business, subsection=economy}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=bg52e9xhqr, display_more=true, moderationrequired=false, includefeaturenotification=true, comments_period=14, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: {allow_comments=true, allow_photos=false, allow_videos=false, comments_period=14, comments_source=washpost.com, default_sort=, default_tab=, display_comments=true, is_ugc_gallery=false, max_items_to_display=15, max_items_to_display_top=3, moderation_required=false, stream_id=}!!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=bg52e9xhqr, display_more=true, moderationrequired=false, includefeaturenotification=true, comments_period=14, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Comments
SECTION: {section=business, subsection=economy}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=bg52e9xhqr, display_more=true, moderationrequired=false, includefeaturenotification=true, comments_period=14, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: {allow_comments=true, allow_photos=false, allow_videos=false, comments_period=14, comments_source=washpost.com, default_sort=, default_tab=, display_comments=true, is_ugc_gallery=false, max_items_to_display=15, max_items_to_display_top=3, moderation_required=false, stream_id=}!!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=bg52e9xhqr, display_more=true, moderationrequired=false, includefeaturenotification=true, comments_period=14, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Show Comments
Most Read Business