Deficit Deal Even Less Likely - Improving U.S. Fiscal Health Eases Pressure for a 'Grand Bargain' Amid Gridlock

From The Wall Street Journal:

 

Shrinking near-term federal deficits, slowing health-care cost increases and partisan gridlock have all but wiped out the likelihood for a deal this year to reduce long-term U.S. deficits, perhaps delaying a compromise until after the 2014 midterm elections, White House officials and congressional lawmakers said.

The prospects for such a "grand bargain" this year have been unclear for some time, but parties to the discussions said in recent days the chances appear to have further diminished due to signs the government's fiscal health is improving. That has removed the pressure needed to force compromises.

On Friday, the trustees for Medicare said that slower growth in spending has put the health program for the elderly on a firmer financial footing. They now estimate the program will be able to pay full benefits until 2026, two years later than projected last year.

Until recently, a key factor driving the two sides toward an agreement was the large annual budget deficit that each viewed as a threat to economic recovery. But now, the short-term deficit is shrinking due to a combination of tax increases, spending cuts and a slowly growing economy, easing pressure for the two sides to forge an agreement.

In mid-May, the Congressional Budget Office estimated that the deficit for the year that ends Sept. 30 will be $642 billion, roughly 4% of gross domestic product. That comes after four consecutive years when the deficit exceeded $1 trillion annually.

The CBO also estimated that the government wouldn't need to raise its borrowing limit until October or November. Without an increase in the debt ceiling, the government will run out of money to pay all its bills—a potential crisis that most lawmakers want to avoid, and which has in the past pushed them toward budget agreements. Now there is little chance they will tackle the divisive issue before their August recess.

One senior Senate Democratic aide said the CBO and Medicare trustees' reports undercut the impetus to tackle long-term deficits. "We need to do something about entitlements but it is not the existential crisis that it used to be," he said. "It's not that it [Medicare] doesn't need fixing. It's that we don't need to do it this year."

Inaction is a dangerous course, given that long-term deficit problems haven't gone away, lawmakers and budget experts said.

Citing the positive economic data, Sen. Johnny Isakson (R., Ga.) said: "If we take that as a reason not to focus on the bigger problem, all we're doing is taking an aspirin for a headache that's going to come back."

He added: "I remain committed to trying to reduce the deficit and debt burden on my children and grandchildren and working with members of Congress and the administration to do that. We have a long way to go."