Shutdown Resolution Could Hinge on One Small Compromise

By FOXBusiness

Day four of the government shutdown and it doesn’t look as though there’s a resolution to the nation’s budget impasse on the horizon.

Continue Reading Below

The shutdown resulted after a weeks-long fight between Democrats and Republicans on Capitol Hill about how to fund the government until either the middle of November or December. After several back-and-forth sessions in both chambers of Congress, neither side would agree to pass the other’s bills. The sticking point was House Republican’s determination to attach stop-gap funding to a repeal or modification of President Barack Obama’s signature law, the Affordable Care Act. But Democrats refused to consider any legislation with ACA language, and the president promised a veto if a bill ever made it to his desk.

Now, four days later, as the nations speeds closer to the October 17 deadline the U.S. Treasury Department has made clear will be doomsday for the nation’s finances, a day on which the nation would begin to default on its financial obligations, many wonder whether Congress can set aside its differences on government funding in time to consider a deal on whether to raise the nation’s $16.7 trillion borrowing limit.

It seems as though there’s a small sliver of light peeking from the slammed doors in Congress: A compromise on the repeal of the ACA’s medical device tax. It could be just the ticket to getting both sides to the negotiating table, and enough to end the political stalemate over funding, and stop worries over potential U.S. debt default. According to sources at the Capitol, about 80 senators support the deal; it just hasn’t officially been floated as a vehicle for compromise.

Peter Boockvar, managing director at The Lindsey Group, a Washington, D.C.-based economic advisory firm, said Thursday the medical device excise tax could very well be the way out of the fiscal mess plaguing Congress.

More On This...

“If there’s a way out of this, it may very well be the medical device tax elimination as 34 Democratic Senators voted to repeal it a few months ago and now won’t touch it. If House Democrats are now on board, the Senate Democrats may be pressured into giving in,” he wrote in a note Thursday.

Mizuho Securities USA’s chief economist, Steven Ricchiuto, in a note to clients Tuesday, said Republicans seem to have the upper hand if this deal ever makes it way to the floor. Ricchiuto said the lack of substantial consequences from the 2013 sequester, and the $1.4 billion cost estimate from two 1996 shutdowns that lasted a total of 26 days, doesn’t come close to offsetting the benefits the Republicans see from delaying the ACA or repealing the medical device tax.

“The fact that the administration has already given unions and large corporations a one-year delay in implementing the health care legislation further weakens the Democrat’s position that the law has to be implemented immediately,” Ricchiuto wrote.

If it goes into effect, the medical device tax would be a 2.3% excise tax manufactures and importers would pay on sales of certain medical devices like surgical gloves, dental instruments, coronary stents, artificial knees and hips, defibrillators, cardiac pacemakers, advanced imaging technology, and others.

But here’s the sticking point for Democrats and the win for Republicans:  This excise tax could prove to be an essential component of the ACA. According to a Congressional Budget Office calculation in 2012, if that tax is repealed, it would mean a loss of $29.1 billion in federal revenue between fiscal 2012 and 2022 -- increasing the deficit by $2.56 billion in the next fiscal year alone.

Peck Madigan Jones ‘ Washington lobbyist Jeff Peck said in a conference call Friday, the costs outlined could add to the difficulty of an effort to repeal.

“(The costs in effect that wouldn’t be covered by the tax) would have to be paid for and would complicate things and that makes it a challenge on one hand,” he said. “But the opportunity here is it had bipartisan support including members of the Senate…it’s the lower-hanging fruit (for compromise) than (an agreement on) the chained CPI (effort).”

Meanwhile, the shutdown continues, the debt ceiling battle looms, and the stalemate goes on. Many economists say economy stands to lose around 0.2 percentage point off gross domestic product per week in the fourth quarter. If that wasn’t enough, hundreds of thousands of government employees have also been furloughed, audits are on hold, defense production is halted, critical medical research is delayed, and the American public’s appetite for gridlock is shrinking.

“When the debt ceiling is reached later this month and the government cannot borrow any additional funds, the level of inconvenience will escalate dramatically as many who are owed money by the government will see only partial or late payments,” IHS Global Insight Chief U.S. Economist Doug Handler wrote Friday. “A failure to resolve either issue will be game changing for the macro economy, but we assume these events will be intelligently addressed before they blossom into full-blown crises. “

FOX Business' Rich Edson contributed to this report from Washington D.C.

What do you think?

Click the button below to comment on this article.