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Bipartisan Budget Deal Averts Devastating Cuts but Lets Pentagon Sidestep Caps

If the budget deal is approved, a new Pentagon slush fund would enable the military budget to rise even further above legislated caps.

Hidden within the surprise budget deal that congressional lawmakers and the White House unveiled on Tuesday is a major windfall for the Pentagon: the inclusion of a $59 billion slush fund that will bring total Pentagon spending over the $600 billion mark in 2016.

If the budget deal is approved, and it’s already on its way having passed the House on Wednesday in a 266-167 vote, this new slush fund would enable the military budget to rise even further above legislated caps. This gimmick is not new – Congress has used slush funds repeatedly to pad Pentagon spending and render budget caps moot.

Domestic discretionary programs have no comparable slush fund – and no way to sidestep budget caps like the Pentagon does.

While the slush fund is supposed to be spent on war-related efforts, an estimated $103 billion has been spent on non-war programs since 2001. The deal would not offset the additional spending on the Pentagon’s slush fund, which means it will add to the nation’s forecasted deficit in 2016 and 2017.

Public opinion shows Americans show strong support for investment in education, the economy, infrastructure and the safety net. Unfortunately, domestic discretionary programs have no comparable slush fund – and no way to sidestep budget caps like the Pentagon does – forcing them to live within their means.

Despite the outrage of the inclusion of this Pentagon slush fund, however, it is nevertheless a relief that Congress and the White House were able to reach a deal.

The budget deal is remarkable for its scope: In one fell swoop, it addresses everything from the impending national default to destructive spending caps on domestic spending. Without this deal, the US economy could have tanked.

How the Deal Came to Pass

How did we get here? The new budget deal is a product of ongoing negotiations by lawmakers on both sides of the aisle, who all brought competing priorities to the table. Negotiations were fraught with attempts to boost federal spending beyond spending caps, amid constant calls to reduce the federal deficit (when the government spends more than it takes in during a single year).

In 2011, the United States was sluggishly emerging from the recession after major investments by the US government staved off a depression. Federal budget deficits were hot news. When some members of Congress insisted on reducing deficits by cutting federal spending, the result was the Budget Control Act. The law’s key feature was a set of budget cuts so severe that they were expected to force members of Congress to negotiate a better path to trimming the federal budget. Instead, negotiations failed and across-the-board spending cuts took effect in March 2013.

The Budget Control Act implemented separate spending cuts for defense and all other domestic discretionary spending. Domestic programs were hit especially hard – right when millions of Americans relied on programs such as unemployment insurance or housing vouchers in the wake of the Great Recession and subsequent sluggish recovery. Later that year, Congress passed the Bipartisan Budget Act of 2013 in order to provide temporary relief from the Budget Control Act spending caps in fiscal years 2014 and 2015. But budget caps were set to return for fiscal year 2016 and beyond, meaning that cuts would return for critical domestic programs such as Head Start, low-income housing assistance and Title I education grants.

Fast forward to October 26, 2015, just before midnight, when lawmakers announced they had reached a bipartisan deal with the White House that would provide relief for spending cuts in 2016 and 2017. The bill, hastened forward by Speaker John Boehner’s intention to leave Congress by Halloween, must be signed by the president before November 3, or the federal government will reach the debt ceiling and no longer be able to pay its bills.

The Deal’s Big Picture

Absent a budget deal, the severe spending caps under the Budget Control Act are set to return in 2016 for both defense and non-defense discretionary spending programs. The budget deal that’s up for debate in Congress would raise the spending caps by $80 billion over the next two years, including $50 billion in fiscal year 2016 and $30 billion in 2017. The additional spending would be evenly split between defense programs and everything else, despite the fact that the Pentagon annually receives more than half of the discretionary budget as it is.

The deal doesn’t raise domestic spending high enough for the major new domestic investment needed in the nation’s economy and infrastructure, and it doesn’t really address deficits, the original reason for the caps. One reason for that is the complete unwillingness of many in Congress to even consider raising taxes, despite polling that shows Americans believe the wealthy and corporations are not paying their fair share. Instead, the deal offsets higher spending by selling barrels of oil from the Strategic Petroleum Reserve, implementing stronger tax compliance measures and making certain changes to Social Security and Medicare.

Changes to Social Security and Medicare

First and foremost, the deal would prevent a crisis in Social Security Disability Insurance funding next year by reallocating funding from the program’s retirement and survivor’s trust fund to its disability trust fund. This prevents a 19 percent cut in disability benefits at the end of 2016. The reallocation is a step that’s been taken multiple times in the past to ensure benefits from both programs can be paid in full and on time. The bill ensures that Social Security’s disability trust fund is fully solvent through 2022, without impacting the long-term solvency of Social Security as a whole. The deal would also make other changes to prevent fraud and decrease overpayment as well as require initial disability claims to include review by a doctor or psychologist.

On Medicare, the deal would prevent a substantial increase in Medicare Part B, or the program’s medical insurance, for millions of beneficiaries who would otherwise have seen a 52 percent increase in their 2016 premiums. It would also cut provider reimbursement rates, which should not impact beneficiaries in the near term.

What’s Next?

In order for the provisions of the agreement to go into effect, the budget deal must first be passed by Congress. And lawmakers seem to be moving quickly to ensure it is signed by the president before November 3, when the government is expected to be unable to pay all of its bills. The House passed the bill in a 266-167 vote Wednesday night. If lawmakers fail to meet the November 3 deadline, the country could face serious long-term consequences such as rising interest rates, a suffering stock market and damage to its credit rating and world standing.

And even if the bill is soon turned into law, Congress will still have to sit down and come up with a budget for fiscal year 2016 that provides each federal program with funding levels under the agreed-upon spending caps. That work must be done by December 11, when the current legislation funding the government runs out.

Overall, the deal represents a rare triumph of bipartisanship in today’s frequently gridlocked Congress. It suspends the debt ceiling, which allows the government to continue paying its bills. It eases budget caps for domestic discretionary spending to allow education, job training and other programs to meet critical needs here at home – though under its limited provisions many crucial needs for domestic investment in areas like infrastructure and education will still remain unmet. It also prevents devastating cuts to disability benefits under the Social Security program.

Nevertheless, the deal remains somewhat shadowed by its provision of a $59 billion slush fund for the Pentagon with a near complete lack of accountability for how those funds are spent. And there is still a possibility that lawmakers could add controversial riders to the bill as it makes its way through the Senate.

Compromises can often have major drawbacks; this one happens to be both expensive and unfair to those who rely on the many domestic programs still struggling.

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