Events moving fast in Congress: the shape of things to come?

by DLA Piper

The next two days in Congress will be characterized by fast-moving developments on the government shutdown/debt ceiling issues.

As of this morning the situation is as follows:

A bipartisan group of senators has been working on a proposal that would likely do the following:

1. Government funding will be extended through mid-January 2014, and the debt ceiling raised through February 7.

2. The regular budget process will be restarted with a requirement that House and Senate negotiators agree on a budget plan by mid-December.  Both Houses have passed budget plans (very different ones) but have never tried to reconcile them.  The agreement puts some form of regular order back into place.

3. A further debt and spending extension will depend on agreeing to a budget plan and implementing it.  Democrats will seek to set aside parts of the sequester, and Republicans are likely to seek long-term entitlement spending reductions.

Speaker of the House John Boehner (R-OH) this morning announced that House Republicans will propose an alternative approach, but the proposal is still being worked out.  It is reported to likely contain the same extension of government funding and the debt limit as the Senate, but will also:

(1) repeal the medical device tax for two years

(2) eliminate subsidies under the Affordable Care Act for members of Congress,  Congressional staff and senior Administration employees

(3) remove the ability of the Treasury Secretary to use extraordinary measures to avoid a default when the debt ceiling expires and

(4) not contain the repeal of a tax on certain health insurance policies that unions have sought to eliminate and that reportedly is in the Senate bill.

The proposal is very fluid, however, and could change.

While there are some clear differences, most notably in the provisions that alter the Affordable Care Act, both approaches appear to have the same periods for extending government funding and the debt ceiling, and both would mandate a budget process using the regular order of the Congress.  In that regard, both the House and Senate budget plans contain general proposals for tax reform.  The House calls for revenue neutral tax reform lowering rates and implementing a territorial system; the Senate plan calls for tax reform that raises $1 trillion in new revenues. 

In any event, Democrats have taken the position that any agreement for long-term entitlement spending cuts must be combined with tax increases. As a result, it is possible that any final budget deal in December could contain tax provisions, or at least a process that could lead to consideration of tax reform.   Then again some are skeptical about whether Congress can broker a larger budget deal in December.

Time is running very for a final agreement to be reached by the Thursday deadline for a possible US default and very intensive negotiations will continue over the next 48 hours.  Despite their differences, there are also some clear similarities in these approaches and potential room for compromise.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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