The only thing clear by the end of last week was that Congress needs more time to negotiate a final budget for FY 2016. By Friday both houses of Congress adopted an extension of federal funding from its expiration on December 11 to December 16 of this week.
Reports were kept confidential but what has been said publically indicates that there are approximately 42 policy riders being negotiated between Republicans and Democrats. The Republican leadership understands that they will likely need a significant number of Democrats to join them on final passage. They also do not want a government shutdown and so both sides are negotiating to their own strength. It seems to be all about riders. Democrats appear to be willing to give Republicans something they want very much in a change in law that will allow importation of US oil. To get it however Democrats are demanding a range of policy riders be dropped by Republicans. Funding levels at this point seem to be a lesser concern.
Another issue that has emerged is a close link between a final budget deal and a tax package agreement. There are approximately 55 tax deductions and credits that expired this year if Congress does not act. In theory and based on past actions Congress could string a deal out until 2016 tax filing date next April 15 even though it isn’t the most effective tax policy. Uncertain tax policy can delay next year refunds and instructions by the IRS.
Republicans would like to make the business credits permanent. In turn Democrats are seeking to extend or make permanent improvements in both the children’s tax credit and the Earned Income Tax Credit (EITC). Throughout the course of tat negotiations rumors have been floated about a possible mega deal that would make a range of credits permanent and might cost over $800 billion (not offset). Some members in both parties see that as too costly. As a result they could eventually act on a narrow two-year extension and that would likely leave off the EITC and Child Tax Credit without additional extensions (the expanded version of the two tax deductions run out in two years).
The struggle on the two deals make it possible Congress will need yet another extension beyond the 16th.