The fiscal impasse also has unsettled financial markets, drawing a threat from Fitch Ratings that it would downgrade U.S. creditworthiness. Fitch said it might strip the nation of its pristine AAA rating even if lawmakers found a deal, given that any such agreement could have a short horizon.
But for all the drama, the bipartisan agreement does little for the country’s most pressing short- or long-term problems, economists say. With 11.3 million people unemployed — a third of them for more than six months — the deal does not contain any measures to address the joblessness problem.
To the contrary, it leaves in place deep domestic and defense cuts, known as sequestration, that took effect this year and that numerous members of both parties oppose. The Congressional Budget Office estimates that sequestration will cost the economy 800,000 jobs next year.
“The ill-timed sequestration cuts are slowing economic growth, worsening unemployment and harming broadly supported public services,” said Bob Greenstein, president of the Center on Budget and Policy Priorities.
At the same time, the agreement offers no new measures to address the nation’s long-term budget deficit.
The CBO also warned last month that “the budget is on an unsustainable path,” in particular because health-care programs will continue to gobble up a growing share of the nation’s financial resources as waves of Americans retire and medical costs climb.
Despite the most recent fiscal battle — the fourth in three years — lawmakers still have not addressed the financial challenge of offering health care to the elderly. That is expected to drive the debt higher for decades.
But there is some hope that these concerns could be addressed in coming months. As a condition of the agreement, Republicans and Democrats from the House and the Senate will try to work out a budget agreement by mid-December.
It will be just the latest of several efforts to find bipartisan agreement on big budget issues — either on a modest goal like reducing the impact of sequestration or a more ambitious initiative like forging a long-term budget agreement.
Democrats dislike the sequester because it undercuts the vision of domestic investment they have long touted in campaigns. Republicans are more ambivalent, but there are many in the GOP who don’t like how deeply it cuts Pentagon spending.
The most likely path to replacing part of the sequester is to make cuts to mandatory spending — such as health-care programs. On a practical level, Republicans and Democrats agree that mandatory spending is better to cut because it’s the long-term driver of U.S. debt.
But any discussion of significant changes to mandatory spending usually leads Democrats to insist on new taxes, which has been a deal breaker for the GOP.