EC Macroeconomic Theory News Supplement U.S Government Budget Another Fiscal Cliff Looming? Professor Sanjay Chugh Fall 2014

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1 Department of Economics Boston College EC Macroeconomic Theory News Supplement U.S Government Budget Another Fiscal Cliff Looming? Professor Sanjay Chugh Fall 2014 As the Wall Street Journal article from December 1, 2014 describes, Congress has less than two weeks to ensure that fiscal activities remain funded beyond the current expiration date of December 11. Despite the seeming bi-partisan agreement in late 2013, after the partial government shutdown, to avoid fiscal cliffs in the near future, it seems there is now some possibility, given that the Republicans will soon have majorities in both the Senate and the House of Representatives and, possibly, because some in the GOP are opposed to President Obama s recent decisions on shielding millions of illegal immigrants from deportation. Macroeconomic Theory Sanjay K. Chugh 1

2 WALL STREET JOURNAL POLITICS AND POLICY Funding Deadline Tops Congress s Agenda Dec. 11 Expiration Is Most Pressing Issue Facing Returning Lawmakers CQ ROLL CALL/GETTY IMAGES By KRISTINA PETERSON Nov. 30, :46 p.m. ET WASHINGTON Lawmakers returning to Capitol Hill on Monday will have less than two weeks to figure out how to keep the government funded amid an acrimonious fight between Republicans and the White House over immigration. With government funding set to expire Dec. 11, top Democrats and Republicans had hoped to pass a so-called omnibus measure that would tie together tailored spending bills to fund the government through September 2015, the end of the fiscal year. Macroeconomic Theory Sanjay K. Chugh 2

3 Democrats, who control the Senate only until January, want to seal in deals that stretch as far into next year as possible. GOP leaders, vowing to avoid a repeat of last fall s partial government shutdown, want to dispatch lingering 2014 business so they can begin the new year by showing they can pass Republican-leaning legislation. But it is unclear what Republicans will do to satisfy conservatives who want to express their anger over President Barack Obama s decision to shield millions of illegal immigrants from deportation. Some of these lawmakers, emboldened by the GOP S midterm-election victories, see funding bills as a way to oppose the president on immigration and other issues, while some also are likely to object to spending levels they deem too high. The bigger-picture idea that we won an election so we ll let [Democratic Senate leader]harry Reid dictate the budget until Oct. 1 of 2015 won t pass muster, said Rep. Tim Huelskamp (R., Kan.). That s just giving up too much ground. He said any spending measure would have to address immigration. If Republicans can t find enough votes to pass the longer-term spending bill, they may have to fall back on a stopgap measure that would keep the government running at its current levels into early 2015, imposing a new fiscal deadline on Republicans just as they take the helm of both chambers. To avoid that, GOP leaders are discussing an idea that merges the two options: passing a bill that would keep all of the government funded through September, except for the Department of Homeland Security, which would be extended just through March. That would put immigration-related funding on a separate timeline. Homeland Security contains the agency responsible for implementing most of the president s executive action on immigration, the U.S. Citizenship and Immigration Services, which funds itself through fees. This option would allow Republicans to Macroeconomic Theory Sanjay K. Chugh 3

4 consider other ways to target that portion of the government without threatening to shut down the rest of it next year. Certainly to me, there seems to be some wisdom in that, said Rep. Luke Messer of Indiana, recently elected to a position in House GOP leadership. That path would erase the possibility of a larger budget battle early next year, leaving Republicans more time to work on GOP-focused energy, trade and deregulation bills, though it would ensure immigration remains a subject of partisan debate. It s not ideal for our overall agenda, but it s an important issue, and we re going to have to deal with it, Mr. Messer said. Republicans are still considering their options for responding to Mr. Obama s immigration plan and are expected to discuss them in a closed-door meeting Tuesday, GOP aides said. House Minority Leader Nancy Pelosi (D., Calif.) has already rejected the idea of splitting off funding for Homeland Security, meaning Republicans would need to find the votes for it largely among their own ranks. Democrats said they expected Republicans to let their anger at Mr. Obama overtake other items on their agenda. The Republicans are very good at creating a crisis atmosphere that thrives on partisanship and politicizing every issue, said Rep. Steve Israel of New York, a member of House Democrats leadership, pointing to the GOP s recent decision to sue the administration over the Affordable Care Act. Meanwhile, lawmakers in the next two weeks will have to confront a mound of other legislation that has piled up on issues including taxes, defense policy and terrorism insurance. Macroeconomic Theory Sanjay K. Chugh 4

5 Some Democrats last week pushed back after their leaders came close to an agreement on extending a number of temporary tax breaks. Mr. Obama threatened to veto the near-deal because it didn t beef up two tax breaks aimed at lower-income workers but would have made some other tax breaks permanent, such as one for business research. Lawmakers also face deadlines on a contentious federal terrorism risk insurance program that expires at year-end and the annual defense-policy bill, which could spark fights over the strategy for combating Islamic State militants or other enemies, as well as the perennial squabbles over Senate procedure. Already, events beyond Capitol Hill are adding to next year s docket. Thanks to two planned cabinet-member departures, the Senate in early 2015 will have to hold confirmation proceedings for Defense Secretary Chuck Hagel s successor as well as Loretta Lynch, Mr. Obama s nominee to succeed Eric Holder as attorney general. Ms. Lynch in particular is likely to face GOP resistance if she backs the administration s recent immigration actions. Some Republicans have said they are prone to oppose most of Mr. Obama s nominees in response to the immigration moves, with some exceptions to preserve national security, including defense secretary. This is not going to be a sail on a summer sea for Republicans next year, said Peter Wehner, a senior fellow at the Ethics & Public Policy Center who worked in several GOP administrations. While the confirmation hearings could help Republicans by subjecting the Obama administration to tough questioning, a fiscal showdown this year or next would be trickier, Mr. Wehner said. In a government shutdown, public opinion tends to favor a president over Congress, he said. Senate Democrats, meanwhile, are likely to try to confirm many of Mr. Obama s nominees while they still hold a majority in the chamber. It isn t yet clear whether the chamber might stay in session longer than the House to confirm more nominees. This week, the chamber is expected to consider a handful of nominees, including Mr. Obama s Macroeconomic Theory Sanjay K. Chugh 5

6 picks for ambassadors to Argentina and Hungary and to other federal posts, including the Equal Employment Opportunity Commission. Write to Kristina Peterson at Macroeconomic Theory Sanjay K. Chugh 6