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Budget Deal Heads for Likely House Passage

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The House of Representatives began debating and was expected to pass Thursday the two-year budget deal struck by Rep. Paul Ryan, R-Wis., and Sen. Patty Murray, D-Wash., which sets spending levels at just above $1 trillion for fiscal 2014 and 2015 and eliminates $63 billion in automatic sequestration cuts.

Under the deal, new spending increases would be offset by increasing the amount federal workers must contribute to their retirement plans.

If the budget deal is passed by the House on Thursday, which was expected, it will then move to the Senate to be considered next week.

House Speaker John Boehner, R-Ohio, criticized the conservative groups who came out against the budget deal, and was quoted in published reports as saying the groups had lost credibility as they rejected the plan before it was announced. These groups are “using our members and using the American people for their own goals,” Boehner was quoted as saying.

In a statement, Boehner said that he was “grateful” for the work done by Murray and Ryan on the deal, stating that “while modest in scale,” the agreement reached late Tuesday “represents a positive step forward by replacing onetime spending cuts with permanent reforms to mandatory spending programs that will produce real, lasting savings.” He said the framework was “consistent with sequester replacement legislation passed by the House in 2012.”

The Bipartisan Budget Act of 2013 would set overall discretionary spending for the current fiscal year at $1.012 trillion, about halfway between the Senate budget level of $1.058 trillion and the House budget level of $967 billion.

The agreement would provide $63 billion in sequester relief over two years, split evenly between defense and nondefense programs. In fiscal 2014, defense discretionary spending would be set at $520.5 billion, and nondefense discretionary spending would be set at $491.8 billion.

The sequester relief is fully offset by savings elsewhere in the budget. The agreement includes dozens of specific deficit-reduction provisions, with mandatory savings and non-tax revenue totaling approximately $85 billion. The agreement would reduce the deficit by between $20 and $23 billion.

Russ Koesterich, chief investment strategist for BlackRock, noted in a statement that the budget agreement “is a mild positive” for the economy, with initial estimates suggesting the deal would add 0.2% to U.S. GDP in 2014.

Should the deal pass, he said, “it would remove some of the fiscal drag associated with the sequester and push back the possibility of another government shutdown until October 2015.” This, he continued, “should modestly help business and consumer confidence.”

However, Koestrich also noted the areas the deal fails to address, including raising the debt ceiling, tax reform, long-term entitlement reform and the pending expiration of previously extended unemployment benefits.

Indeed, Senate Majority Leader Harry Reid, D-Nev., noted in a statement after the deal was announced that “neither side got everything it wanted in these negotiations. That is why I will push for an extension of unemployment insurance, as well as an increase in the minimum wage, when the Senate convenes after the New Year.”

Reid said that an extension of emergency unemployment insurance should also be included in the package.

The two-year bargain, Reid continued, “charts a course for economic growth, maintains fiscal responsibility and – perhaps most importantly – averts another manufactured crisis that would undercut the economic progress of the last four years.” He added: “I look forward to working with my colleagues on both sides of the aisle and both sides of the Capitol to pass this agreement.”

Former Senate Budget Committee Chairman Pete Domenici, now a senior fellow at the Bipartisan Policy Center, said in a statement that he hoped the budget deal would pass, adding that “If this deal also leads to less drama over the debt ceiling and fiscal year 2015 appropriations, then the American people will see a much more functional Congress and a much less melodramatic fiscal discussion.”

While the budget deal is “just a first step,” he continued, “it is the essential first step toward eventual congressional action on a long-term debt stabilization plan.”

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