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Congress Averts Government Shutdown

Congress on Wednesday avoided a government shutdown by passing a bill that keeps the government running through mid-December, but leaves unresolved a divide over federal spending that threatens to resurface this winter with more perilous economic consequences. The bill’s passage, hours before the government’s current funding was set to expire at midnight, halted—but is unlikely to end—a partisan fight about Planned Parenthood and an internal GOP war over strategy that helped end the career of House Speaker John Boehner (R., Ohio). Congress now confronts a Dec. 11 deadline to try to strike a longer-term budget deal at a time when House Republicans are losing their most experienced leader and remain split over how to negotiate with President Barack Obama and Democrats.

Moreover, the stopgap measure will end around the time when Congress also has to consider raising the debt ceililng, and one week before a key Federal Reserve meeting, at which many economists expect the central bank to raise interest rates for the first time in nearly a decade. Lawmakers also will contend with along-term highway bill and expiring tax breaks at year’s end.

“I don’t think we’ve solved anything other than extending a deadline,” Rep. Dennis Ross (R., Fla.) said Wednesday. Investors haven’t had to focus much on fiscal policy after a government shutdown two years ago gave way to bipartisan agreements to ease spending curbs and raise the debt ceiling. Now, the confluence of unfinished business and a more unpredictable political dynamic—underscored by Mr. Boehner’s sudden resignation—raises new concerns for businesses that could crimp confidence and delay investment.

“We have a good recovery in place that’s really making progress, and to see Congress take actions that would endanger that progress, that would be more than unfortunate,” Federal Reserve Chairwoman Janet Yellen said recently. Politically, the stakes also are high because whatever Congress doe s for the fiscal year beginning Thursday is likely to hold for the one after that given lawmakers’ reluctance to revisit the fight next summer in the middle of a heated election campaign. That would make the current budget battle the last for Mr. Obama, further emboldening Democrats.

Battle lines already are being drawn as to where to set spending levels in the next agreement. Senate Majority Leader Mitch McConnell (R., Ky.) said this week he hopes to strike a deal with Mr. Obama that would set overall levels through fiscal year 2017, which ends Sept. 30 of that year.

Conservative Republicans, smarting over the bill passed Wednesday, which included funding for Planned Parenthood, said they would fight to keep spending capped at limits agreed to in 2011. That agreement ended a debt-limit fight that convulsed markets and prompted Standard & Poor’s to strip the U.S. of its triple-A credit rating. The pact threatened further cuts, known as the sequester, that took effect in 2013 after lawmakers failed to agree on a long-term deficit-reduction package. “If we blow those budge caps and we go back into the kind of deficit spending that occurred before 2012, that is an untenable position for people like me,” said Re. Matt Salmon (R. Ariz).

Many Republicans want to boost military spending above the limits, but Democrats have said they would agree to do that only if domestic spending is increased. Mr. McConnell said it is “inevitable” that Republicans would discuss raising the caps with Democrats. Republicans will push to find offsetting cuts elsewhere, particularly in the nearly two-thirds of the budget spent automatically on safety-net programs including Medicare.

The Obama administration has proposed lifting spending above 7% above the caps for the fiscal year that begins Thursday, adding around $74 billion that it says could be offset with higher revenues or savings from entitlement programs. Under current law, the sequester will allow for discretionary spending to rise just 0.2% in fiscal 2016, less than the rate of inflation.

Maintaining the sequester “frankly devastates our military,” said Rep. Mario Diaz-Balart (R., Fla.). Simply extending current funding levels for the rest of the coming fiscal year is “grossly irresponsible because it guarantees you are funding things that we no longer need,” he said.

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