Last week, the chairs of the budget committees in the U.S. House and Senate announced a budget deal that provides for additional discretionary funding in federal fiscal years 2014 and 2015, which is offset with lower spending and higher fees over the decade. The House passed the deal last week with a bipartisan vote, and the Senate passed it this week.
This deal should allow Congress to avoid another shutdown when the latest continuing resolution expires on January 15.
The deal replaces $45 billion of the across-the-board sequestration cuts for FY 2014 and $18 billion in FY 2015. The sequestration relief is divided evenly between defense and nondefense spending, which is important since the cuts were also divided equally between defense and nondefense. However, this is a very moderate step. Sequestration cuts total $109 billion each year, so $64 billion in cuts remain in FY 2014 and $91 billion in FY 2015.
The reduced impact of sequestration in fiscal years 2014 and 2015 is paid for in part by extending sequestration cuts affecting mandatory (or entitlement) spending into 2022 and 2023, including cuts to Medicare provider payments and the Social Services Block Grant. The budget deal also raises some revenues through higher airline passenger fees and increased retirement contributions from federal employees.
However, the budget deal is missing some important measures. First, it fails to extend unemployment benefits for the long-term unemployed. On January 1, 2014, 1.3 million U.S. workers will lose their unemployment benefits, and during the year another 3.5 million will lose their unemployment benefits as well unless Congress goes back and extends Emergency Unemployment Compensation. In Minnesota, 65,500 workers would lose their unemployment benefits in 2014.
Second, sequestration cuts have only been lessened for the next two years. Sequestration has cut funding for many services that make a real difference in the lives of vulnerable people, including Head Start, the Low-Income Home Energy Assistance Program (LiHEAP), and affordable housing.
The sequester and other deficit-reduction measures also are creating a drag on the economy – by some estimates, they have slowed economic growth by 1 percent or more.
The budget deal is a small step forward. Which services will see an easing in their sequestration cuts will be determined when the appropriations bills are written in January. The failure to extend Unemployment Insurance benefits is a serious concern, and policymakers should act quickly. There are still not enough jobs available, and as the Center on Budget and Policy Priorities notes, the expiration of Unemployment Insurance benefits will “put a drag on the economy about as large as the Macroeconomic Advisors’ estimate of the boost provided by easing the sequestration cuts.” Policymakers should act quickly to ensure that the budget deal’s step forward doesn’t disappear.