Highlights of the US$85b US budget accord

PUBLISHED : Wednesday, 11 December, 2013, 4:38pm
UPDATED : Wednesday, 11 December, 2013, 4:38pm

The modest US$85 billion US budget deal reached in congress on Tuesday gives both Democrats and Republicans something to brag about.

Republicans can say they did not increase taxes and found additional ways to reduce the deficit. Democrats can say they found relief from forced spending cuts on education and other domestic spending programmes, while avoiding major changes to Medicare and Social Security benefits for the elderly. And both sides can say they helped the military avoid deeper cuts.

But airline travellers, newly hired federal employees and some military retirees would lose out in the agreement to be presented to congress for approval in the next two weeks.

The deal sets federal spending levels for two years and its proponents argue that it will help congress end its budget warfare through at least October 1, 2015.

Here are the major components of the tentative agreement negotiated by Republican Representative Paul Ryan and Democratic Senator Patty Murray:

Automatic ‘sequester’ spending cuts

It blunts the effect of these already-enacted across-the-board cuts by allowing spending on federal agencies and discretionary programs to rise by US$63 billion over scheduled levels – US$45 billion in fiscal next year, which began on October 1, and US$18 billion in fiscal 2015. The spending relief is split evenly between domestic and military programmes.

Spending levels

The deal sets discretionary spending levels at US$1.012 trillion for fiscal next year, up from the US$967 billion level that included the full effect of the automatic, “sequester”, spending cuts approved as part of a temporary budget deal in 2011. Military spending would be set at US$520.5 billion, avoiding a US$20 billion additional cut in January, while domestic spending would be set at US$491.8 billion;

For fiscal 2015, the discretionary spending would be set at about US$1.014 trillion, up from US$995 billion scheduled under the sequester cuts.

Deficit reduction

In addition to the US$63 billion in sequester relief, the deal will provide an additional US$20 billion to US$23 billion in deficit reduction spread over 10 years, through a combination of lower government benefits, spending cuts and higher revenues. Ryan told a news conference that he believes the additional savings will help secure Republican support for the plan, overcoming objections by some conservatives that the plan would violate spending caps imposed under the sequester cuts.

Federal retirement benefits

The deal finds US$12 billion in savings by through changes to retirement programs for federal employees and working age retired military service members. Federal employees hired after January 1 would contribute an additional 1.3 per cent of their pay towards their retirement benefits for the first five years of their employment. Scheduled cost-of-living adjustments for military retirees would be reduced, but neither those over age 62 nor those who retired because of injuries or disabilities would be affected.

Transportation security fees

The deal would increase the airport security fees paid by airlines to the Transportation Security Administration. A summary of the deal did not provide an amount, but airline industry groups were anticipating a doubling of the fee to US$5 per ticket, which would provide US$10 billion to US$11 billion in revenue over a decade.

Extends cuts on mandatory spending

The sequester cuts, put in place under a 2011 budget deal, are scheduled to end in 2021. But the deal reached on Thursday would extend for two years the portion of the automatic cuts assigned to mandatory spending programmes, including portions of the Medicare health care programme for the elderly. Extending these cuts to 2022 and 2023 would save US$28 billion over 10 years. Ryan touted the provision as a first step in controlling mandatory spending costs.

Other savings

The deal includes a number of items related to natural resources, including cancelling a deep-water resources research programme and rescinding funds available in the strategic petroleum reserve. It also reduces certain fees for education loan guarantees, extends customs and border protection user fee collections and raises the premiums that private companies pay the federal government to guarantee their pension benefits.

Not included

The deal left out a number of items considered important in the overall budget debate:

An extension of long-term unemployment benefits due to expire on December 31 for about 1.3 million jobless Americans.

A plan to stop the scheduled reduction in payments to doctors from the Medicare health care system.

Increased revenues sought by Democrats from the elimination of certain tax deductions and credits for wealthy individuals and large corporations.

Major cuts to federal benefit programmes sought by Republicans, who cite the growth of Medicare, Medicaid and Social Security as the major source of long-term budget problems.

A plan to increase the federal debt limit. An extension of the US$16.7 trillion debt limit expires on February 7 and if it is not raised, the United States will likely run the risk of a debt default by the spring of next year.