Senate Democrats struggle to craft plan for sequester replacement

Senate Democrats are struggling to come up with a replacement for the $85 billion sequester set to begin on March 1.

Key Democrats huddled Thursday in Senate Majority Leader Harry Reid’s (D-Nev.) office to discuss options for preventing the looming spending cuts after returning from a retreat in Annapolis where they discussed strategy with President Obama.

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“It's a work in progress,” said Sen. Barbara Mikulski (D-Md.), the chairwoman of the Senate Appropriations Committee.

Other senators said the party so far has not agreed on the balance of tax hikes and spending cuts in a package, on how big the package would be or on how much of the sequester it would replace.

The Senate Finance Committee has jurisdiction over tax issues, but Sen. Max Baucus (D-Mont.), the panel’s chairman, said he wasn’t sure who would lead the bill through the Senate.

Asked if he would be the senator shepherding the bill, he responded: “Good question.”

A Democratic aide said Reid has asked senators to give him options on replacing the sequester before they leave for a long President's Day recess on Feb. 15.

Both Senate Democrats and House Republicans are determined to not be blamed if the sequester does go into effect.

The Congressional Budget Office estimates it would trim economic growth by 0.7 percent, while the Bipartisan Policy Institute predicts it would cost the nation 1 million jobs.

Obama this week warned an improving economy would be set back by the sequester, and called on Congress to prevent at least some of the cuts with a combination of different spending cuts and tax hikes.

But huge differences remain between Republicans and the White House, raising questions about whether a deal can be reached to avert the cuts. 

Neither side has offered a specific plan this year for replacing the $85 billion in cuts set to go into effect. 

The House did approve a GOP-backed plan twice last year that would have turned off $72 billion in cuts to the Pentagon and non-defense spending. The House bill, approved last May in a 218-199 vote, would have left sequester cuts to Medicare and other mandatory spending in place. It also would have added $315 billion in new cuts, none of which would have hit the Pentagon. 

The House approved a similar bill in December in a tighter 215-209 vote, but the Senate would agree to neither bill, and both died at the end of the last Congress. The House has no immediate plans to move a similar bill again this year, sources have said.

Speaker John Boehner (R-Ohio) and House Republicans insist the sequester should not be delayed unless Democrats agree to a different set of spending cuts. They say no tax hikes should be included in a replacement package.

Senate Democrats emerged from the meeting on Thursday with Reid to say they are not ready to produce detailed replacement legislation. Baucus, Mikulski and Senate Budget Committee Chairwoman Patty Murray (D-Wash.) attended the meeting.

Baucus said the only certainty was that legislation would be presented before March 1.

“It has to be before the sequester takes effect,” he said.

Baucus said Finance is looking at specific tax provisions that would be used as part of a package to replace the sequester. The committee had an informal meeting on Thursday where no decisions were taken, members said.

“Wait and see what’s introduced,” Baucus advised.

Key differences among Democrats on how to proceed were evident from some of the comments.

The Finance chairman, for example, has been keen to avoid touching individual and corporate tax provisions as part of a plan to replace the sequester. Baucus would rather save such provisions for an overhaul of the tax code so that they could be used to offset lower tax rates.

Defense hawks in the party are more keen to use tax breaks to replace the sequester cuts, half of which would hit the Pentagon.

Senate Armed Services Committee Chairman Carl Levin (D-Mich.), for example, said Thursday he soon will offer legislation language to replace the sequester with savings from the tax code.

“What I’ve proposed, and it’s very specific, is some of the offshore tax avoidance which goes on in this country that will more than pay for sequestration … I hope that’s part of a Democratic approach to avoiding sequester,” he said.

“There’s corporations in this country that ship revenues and profits offshore to avoid paying taxes on it,” Levin continued. “I have legislative language I will be sharing today or tomorrow with my Democratic colleagues. I hope that’s part of a Democratic approach to avoiding sequester.”

While there has been some talk that Democrats could offer only tax hikes as an opening negotiating position with Republicans, the caucus seems to be settling on including at least some spending cuts in its proposal in order to claim to have offered a reasonable compromise.

“Democrats plan to bring a balanced plan that includes revenue and cuts to the table to avoid sequestration,” a Senate leadership aide told The Washington Post’s Greg Sargent on Thursday.

Sen. Tim Kaine (D-Va.), whose state is dependent on the defense industry, said Democrats are “are very committed to not wanting the sequester to go into effect.”

He said he did not know when that solution would be produced.

“I hope there will be something soon,” said Sen. Sherrod Brown (D-Ohio), a member of Senate Finance. “What we need is Republicans to be willing to show some openness to revenue.”

Republicans say Democrats must put entitlement spending on the table.

The GOP argues that deficit talks from 2011 and 2012 have already produced many options from raising the Medicare eligibility age to changing the way inflation is calculated when determining government benefits.

Joint Economic Committee ranking member Sen. Dan Coats (R-Ind.) took to the floor to demand such mandatory spending be included in a package.

“Let me be straight and say the things we are not supposed to say because it is political suicide: If we don't reform Medicare, Medicaid, and Social Security, it doesn't matter what else we do, we will not solve this problem,” said Coats.

White House spokesman Jay Carney on Thursday said the GOP “demands” so far for a sequester replacement were all “terrible.”

—Alex Bolton and Peter Schroeder contributed

This story was updated at 10:58 a.m.