Senate to pass budget, ushering in lull in fiscal battle

WASHINGTON Fri Mar 22, 2013 5:59pm EDT

A general view of the U.S. Capitol building in Washington February 28, 2013. REUTERS/Jason Reed

A general view of the U.S. Capitol building in Washington February 28, 2013.

Credit: Reuters/Jason Reed

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WASHINGTON (Reuters) - The Senate was poised to pass its first budget in four years on Friday, a move that will usher in a relative lull in Washington's fiscal wars until an anticipated summer showdown over raising the debt ceiling.

For the next few months, Democrats and Republicans are expected to tout the partisan tax and spending policies reflected in their rival budgets while they turn to other legislative issues, such as immigration reform and gun control.

Passage of a stop-gap government funding measure on Thursday lowered the temperature in the budget debate by eliminating the threat of a government shutdown next week.

"We're going to get a breather here. Congress will let things cool off a bit and there'll be other issues that come to the forefront in the spring," said Greg Valliere, chief political strategist at Potomac Research Group, a firm that advises institutional investors on Washington politics.

In addition to gun control and immigration, these also will include work on simplifying the tax code, which is particularly important to Republicans.

After 2013 started with high drama over the January 1 "fiscal cliff" tax increase on the wealthy, Republicans in the House of Representatives chose not to press demands for deep spending cuts on a February debt limit increase or this week's funding bill.

Some $85 billion in automatic spending cuts were triggered on March 1, but their effects are just now starting to become apparent, and the funding bill will ease some of the pain for government agencies.

After a two-week Passover/Easter break, appropriations committees also will start work on spending bills for the fiscal 2014 year starting on October 1 that could give agencies further spending flexibility within their reduced budgets.

FIGHT OVER "BALANCE"

The Democratic budget is expected to be passed late on Friday night or early Saturday morning after the Senate votes on dozens of largely symbolic amendments aimed at scoring political points with key constituents.

Senate Budget Committee Chairman Patty Murray has described her Democratic blueprint as a "jobs and growth budget." It calls for raising nearly $1 trillion in new tax revenues through ending or capping some breaks for the wealthy, replacing the automatic spending cuts with other savings and making modest cuts to health care.

To stoke near-term economic growth, it also calls for $100 billion in new spending on infrastructure economic growth and

Murray's plan, which claims $1.85 trillion in overall deficit reduction through 2023, squares off against the House Budget Committee Chairman Paul Ryan's plan, which claims $4.6 trillion in savings on top of the automatic spending cuts.

Ryan's plan aims to reach a small surplus with no tax increases by 2023 through deep cuts to social safety net programs. This enables Republicans to claim that they are more responsible by balancing the budget.

"The House budget changes our debt course, while the Senate budget does not," said Senator Jeff Sessions, the top Budget Committee Republican. The Senate budget increases taxes increases spending and during that 10 years."

But in a taste of the ideological debates to come, Murray claims the Senate budget it is more "balanced" because it emphasizes job growth and offers an equal amount of revenue increases and spending cuts.

Although lawmakers in both parties have called for a return to normal budgeting procedures after years of stop-gap spending bills and high-pressure deadlines, there is little chance that they can work out differences between the two budgets.

"The idea of conferencing them is kind of a joke. You would expect that if there were a chance of success, they wouldn't have planted flags on completely different planets," said Sean West, U.S. policy director at Eurasia Group, a political risk consultancy.

Ultimately, it may take another 11th-hour deal between President Barack Obama and congressional Republicans to set a fiscal path forward as part of a deal to raise the debt ceiling, he said. The U.S. Treasury is expected to exhaust its borrowing capacity around late July or early August.

In 2011, a similar fight over the debt limit shook financial markets and cost the United States its top-tier credit rating.

Even then, the so-called "grand bargain" that reduces deficits by $2 trillion or more by pairing revenues from tax loopholes with savings from reforms to the Medicare health program for the elderly and the Social Security retirement system will likely remain elusive with such deep divisions.

"I'm skeptical that we get any sort of grand bargain," West said.

But a smaller deal could be that chips away at the deficit and prevents major disruptions to the economy and financial markets may be possible, added Valliere.

"The savings may be in the hundreds of billions, not the trillions, but it's another increment of fiscal restraint," he said.

(Editing by Alistair Bell and Eric Walsh)

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