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Senate to pass budget, ushering in lull in fiscal battle

House Budget Chairman Paul Ryan speaks at the Conservative Political Action Conference (CPAC) at National Harbor, Maryland March 15, 2013. R
House Budget Chairman Paul Ryan speaks at the Conservative Political Action Conference (CPAC) at National Harbor, Maryland March 15, 2013. R

By David Lawder

WASHINGTON (Reuters) - The Senate was poised on Friday to pass its first federal budget in four years, a move that will usher in a relative lull in Washington's fiscal wars until an anticipated summer showdown over raising the debt ceiling.

The Democratic-focused budget plan from the Democratic-controlled Senate will square off against a Republican-focused budget passed on Thursday by the Republican-dominated House of Representatives.

Neither is likely to be passed by their opposite chambers and become law, but the plans will give each party a platform in coming months from which to tout vastly different visions for shrinking U.S. deficits and growing the economy.

Passage of a stop-gap government funding measure on Thursday lowered the temperature in the budget debate by eliminating the threat of a government shutdown next week.

"We're going to get a breather here. Congress will let things cool off a bit and there'll be other issues that come to the forefront in the spring," said Greg Valliere, chief political strategist at Potomac Research Group, a firm that advises institutional investors on Washington politics.

These include legislation on gun control, immigration reform and initial work on simplifying the tax code, which is particularly important to Republicans.

After 2013 started with high drama over the January 1 "fiscal cliff" tax increase on the wealthy, Republicans in the House of Representatives chose not to press demands for deep spending cuts on a February debt-limit increase or on this week's funding bill.

Some $85 billion in automatic spending cuts were triggered on March 1, but their effects are just now starting to become apparent, and the funding bill will ease some of the pain for government agencies.

After a two-week Passover/Easter break, appropriations committees will also start work on spending bills for the 2014 fiscal year starting on October 1 that could give agencies further spending flexibility within their reduced budgets.

In the lead-up to the Senate vote, the body considered dozens of largely symbolic, non-binding amendments to the budget aimed at scoring political points and staking out positions.

But in these votes, the Senate signaled strong support for allowing states more authority to collect sales taxes on Internet purchases, for approval of the controversial Canada-to-Texas Keystone XL oil pipeline and for repealing a tax on medical devices imposed by President Barack Obama's health care reform law.

The Senate also voted 99-0 to end policies that subsidize large banks considered "too big to fail" but came out against imposing taxes on industrial carbon emissions.

FIGHT OVER "BALANCE"

Senate Budget Committee Chairman Patty Murray has described her Democratic blueprint as a "jobs and growth budget." It calls for raising nearly $1 trillion in new tax revenues through ending or capping some breaks for the wealthy, replacing the automatic spending cuts with other savings and making modest cuts to health care.

To stoke near-term economic growth, it also calls for $100 billion in new spending to rebuild infrastructure and to retrain workers.

Murray's plan, which claims $1.85 trillion in overall deficit reduction through 2023, is already locking horns with that of Paul Ryan, Republican chairman of the House Budget Committee, which claims $4.6 trillion in savings on top of the automatic spending cuts.

Ryan's plan aims to reach a small surplus with no tax increases by 2023 through deep cuts to social safety net programs. This enables Republicans to claim that they are more responsible by balancing the budget.

"The House budget changes our debt course, while the Senate budget does not," said Senator Jeff Sessions, the top Republican on the Senate Budget Committee.

In a taste of the ideological debates to come, Murray claimed that the Senate budget was more "balanced" because it emphasizes job growth and offers an equal amount of revenue increases and spending cuts.

For a side-by-side comparison of the two deeply divided Ryan and Murray budgets, see [ID:nL1N0C5HIO].

The Senate has not passed a budget since 2009 because of fiscal policy disputes with House Republicans that forced Congress to pass numerous stop-gap spending measures to avoid government shutdowns.

To protect their thin Senate majority, Democrats avoided exposing their members to potentially damaging votes to raise taxes ahead of 2012 elections, arguing that a 2011 budget deal set spending levels for several years and made a budget resolution unnecessary.

Although lawmakers in both parties have called for a return to normal budgeting procedures after years of stop-gap spending bills and high-pressure deadlines, there is little chance that they can work out differences between the two budgets.

"The idea of conferencing them is kind of a joke. You would expect that if there were a chance of success, they wouldn't have planted flags on completely different planets," said Sean West, U.S. policy director at Eurasia Group, a political risk consultancy.

Ultimately, it may take another 11th-hour deal between Obama and congressional Republicans to set a fiscal path forward as part of a deal to raise the debt ceiling, he said. The U.S. Treasury is expected to exhaust its borrowing capacity around late July or early August.

In 2011, a similar fight over the debt limit shook financial markets and cost the United States its top-tier credit rating.

Even then, a so-called "grand bargain" to reduce the national deficit by $2 trillion or more by pairing revenues from tax loopholes with savings from reforms to the Medicare health program for the elderly and the Social Security retirement system will likely remain elusive with such deep divisions.

"I'm skeptical that we get any sort of grand bargain," West said.

But a smaller deal that chips away at the deficit and prevents major disruptions to the economy and financial markets may be possible, added Valliere.

"The savings may be in the hundreds of billions, not the trillions, but it's another increment of fiscal restraint," he said.

(Editing by Alistair Bell, Eric Walsh and David Brunnstrom)

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