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August 21, 2014

Budget Wars Likely to Fizzle Fast

After a two-week break — heralded by the quick and bipartisan capitulation to exempt the flying public but no one else from the sequester’s scythe — the budget wars are getting started again.

But signs point to the next few skirmishes fizzling fast.

Although it appeared likely when the year began, with a last-minute deal that looked like only a balky skid along the edge of the fiscal cliff, Congress is not facing a summer that’s going to look like 2011 all over again.

That’s mainly a consequence of the government’s short-term fiscal position, which on paper looks pretty good. The Treasury’s balance sheet for April was $113 billion in the black, the biggest monthly surplus in five years. Steady economic growth and the higher tax rates put in effect in January have quickened the flow of revenue. And the flow of spending has slowed now that those deep spending cuts, once dismissed as too indiscriminate to carry out, have nonetheless been put in place (except, of course, for those air traffic controllers).

The result is a federal deficit for the first seven months of this budget year totaling $488 billion, or just two-thirds of what it was during the same period the year before. At that pace, there will be less red ink on the books in September, at the end of fiscal 2013, than in any year since the finale of the George W. Bush administration.

With news like that, it’s going to be essentially impossible for conservative Republicans to build a head of steam behind their “shut it down” crusade.

The year began with the GOP agreeing not to hold the limit on federal borrowing hostage — but only until May 18. When that limited truce was set, the universal expectation was that the government would need congressional permission to borrow again by summer, meaning the fiscal hawks would once again be able to insist on budget concessions just before the House and Senate scattered for their off-year August recess.

Now, the newly rosy deficit scenario means Treasury probably won’t be bumping up against its debt ceiling before November, maybe not even before the end of the year. And without that pressure, the next budget deal looks to be six months away at the earliest.

That buys a sufficient amount of time for Republicans to get their story straight about what they want in return for permitting the national debt to rise to more than $17 trillion.

Deliberations will get started for two hours Wednesday morning, during a special closed meeting of the House Republican Conference.

There’s already pretty wide agreement against seeking deeper cuts to military and domestic discretionary programs than what’s now on course because of the sequester. That leaves two obvious alternatives.

One is to press Obama once more to negotiate deficit reduction entirely from curbing Medicare and other entitlements, and not at all from raising revenue. The president would, of course, reject that out of hand, but at least that approach would live up to the requirement for debt-increase deals set by Speaker John A. Boehner two years ago: Every dollar in new borrowing permission needs to be paired with at least a dollar in spending cuts.

The second alternative was getting more buzz last week, after it was promoted not only by Ways and Means Chairman Dave Camp but also by Budget Chairman Paul D. Ryan: Condition GOP support for more borrowing on Obama’s support for a revenue-neutral tax overhaul — one designed to simplify the system — by ending many deductions and exemptions, and cut rates for businesses and maybe individuals as well.

How this would meet the “Boehner rule” is a mystery, because even the GOP tax writers aren’t claiming that their achievement would spur an economic surge and oceans of revenue along with it.

And why anyone would think the president would go along is at least as unclear. Obama might abandon his “I’m not bargaining on the debt ceiling, period” approach if he got a tax simplification deal ending more breaks for the rich than for the rest and contributing hundreds of billions of dollars to the balance sheet in the next decade. But that’s not what’s in the offing.

For now, congressional Democratic leaders are essentially laughing off the tax overhaul talk and having a terrific time poking at Republicans for refusing to return to the budgetary regular order they’ve bellyached about missing in recent years.

And it’s the policy wonks at Treasury, not the political types in the West Wing, stoking the notion that the most comprehensive update of the IRS rulebook since 1986 still may be a 50-50 proposition.

The final decision about whether this Congress will tackle the tax code is way on the other side of summer vacation. And that budget resolution conference agreement will remain a permanent mirage. But there’s still real fiscal work to be done, and it starts this week with initial debate in House Appropriations on one or two spending bills.

The two sides are already $91 billion, or 9 percent, apart on what the coming year’s grand total for discretionary spending should be. That spat alone should be enough to keep the budgeteers busy for a while.

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