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Congress’s high-stakes budget fight to avert an economic crisis, explained

Trump needs Democrats to strike a deal on budget caps and a debt limit. He’s escalating tensions.

President Trump Discusses Mueller Investigation In Rose Garden Of White House
US President Donald Trump escalated tensions with Democrats over investigations.
Chip Somodevilla/Getty Images

The deadlines are building; unless Congress acts, the United States is on a path to economic crisis. But Democrats still don’t see a willing negotiator in President Donald Trump.

Come October 1, the government will not only run out of funding and shut down, but the current government budget caps will expire, automatically triggering roughly $120 billion in across-the-board cuts to domestic and military programs. Meanwhile, after breaching the debt limit in March, the Treasury Department is already taking extraordinary measures to ensure the United States doesn’t default on its loans.

There’s some good news: Both the White House and leaders in Congress appear interested in averting such a crisis. Republican leaders met with Treasury Secretary Steve Mnuchin this week to discuss an opening offer for Democrats, and Senate Leader Mitch McConnell has reportedly been advocating for a middle ground deal on budget caps and debt ceiling. Pelosi said she hadn’t seen what Republicans agreed to.

“When we have been engaged in conversation ... we were making some progress,” House Speaker Nancy Pelosi said Thursday. “But then they kind of backed away from it.”

In May, top congressional leaders met with White House officials and agreed to raise the budget caps and the debt ceiling to avoid a sequester. But Trump and fiscal hawks in his administration like White House chief of staff and Office of Management and Budget Director Mick Mulvaney, who has advocated for draconian budget cuts in the past, remain wild cards in negotiations. Trump tweeted a bipartisan budget deal was “not happening!” in April. He said in May he wouldn’t negotiate on big-ticket items like infrastructure until Democrats stopped investigating him.

Pelosi said she’s skeptical a deal can be made if “Mick Mulvaney takes the lead,” citing his record of voting in favor of shutting down the government. “Left to our own devices, we can get it done,” Pelosi said. “It’s when they come in with deal breakers ... because they don’t believe in governance.”

Democrats want to increase spending for domestic programs, fighting against Trump’s budget proposal that cut domestic programs by 9 percent, in order to give a massive funding boost to the military. The threat of the sequester has been looming over the federal government since 2011 as the result of a law passed to end a spending fight between then-President Barack Obama and then-Republican House Speaker John Boehner. Since then, Congress has been in a perpetual fight to avoid blanket budget cuts.

Now Trump’s apparent affinity for brinksmanship remains the greatest obstacle.

An Obama-era deal with Republicans to stave off economic calamity got us here

President Obama Delivers State Of The Union Address
An impasse between former President Barack Obama and former House Speaker John Boehner (R-OH) led to these sequester caps.
Mandel Ngan-Pool/Getty Images

The need for budget caps goes back to 2011, when an Obama-era impasse over the debt ceiling brought the American economy to near calamity. Republicans in the House, led by Speaker Boehner, refused to increase the debt limit without Congress addressing the national debt. It’s something Mulvaney played a role in back when he was one of the House’s archconservatives.

The face-off, which put the United States at risk of defaulting on its debt, pushed President Obama to sign the Budget Control Act. The law instructed Congress to find more than $1 trillion in government spending cuts by the end of the year or risk a sequester, which cuts all discretionary programs — defense and non-defense — across the board (except for entitlement programs like Medicaid and Social Security). Mulvaney was one of the Tea Party agitators who worked to block any increase to the debt limit, eventually forcing Obama’s hand to sign the BCA.

Congress failed to thoughtfully cut spending, which triggered automatic budget cuts in 2013 and imposed annual, more restrictive budget caps until 2021 — the sequester. The across-the-board budget cuts and established caps would amount to $1.2 trillion in cuts over the next 10 years. According to a 2015 report from the Center on Budget and Policy Priorities, funding for domestic programs was essentially flat between 2012 and 2015, meaning there were substantial cuts when adjusted for inflation.

Democrats and Republicans have repeatedly voted to raise the budget caps and give sequester relief, but those adjustments are set to expire this October.

Put simply, either Congress has to vote to raise the budget caps for defense and domestic spending or the country will go to sequester-level spending — which would mean roughly $71 billion in budget cuts to defense spending and $55 billion in cuts to domestic programs.

A budget deal would avert a sequester. But there are still sticking points over domestic and military spending.

Congress has been here before. Budget and government spending fights are grand bargains in Congress, and so far, Republican and Democrats want a deal.

“A negotiated agreement with the House Democrats is the best of three alternatives, the other two being arguing back and forth over the length of a [continuing resolution] for God only knows how long, or a sequester, which hits defense with about a $71 billion cut at the end of the year,” McConnell told reporters earlier this year.

These negotiations almost always go the same way: Democrats are focused on increasing funding for domestic programs, while Republicans are zeroed in on increasing military funding. Democrats say they are fighting for a longstanding principle of “parity,” or increasing both the defense and domestic budgets by the same dollar amount.

“Democrats are committed to working on a bipartisan basis to avert devastating cuts of the sequester,” Pelosi and Minority Leader Chuck Schumer said in a statement after a White House meeting in May. “We continue to insist that there be parity in increases between defense and non-defense, and that we adequately fund critical domestic priorities, including the census and our commitments to our heroic veterans.”

Senate Lawmakers Address The Media After Weekly Policy Luncheons
Senate Majority Leader Mitch McConnell is hopeful a deal will come together.
Tasos Katopodis/Getty Images

These top-line numbers are important because in addition to avoiding the sequestration, Congress has to actually start deciding how it will dole out money to different departments and agencies. And agreeing on budget caps will allow appropriators to begin putting together a government spending bill to keep the government open. The House has started the appropriations process, the Senate hasn’t.

In an interview with Vox in early May, Sen. Bernie Sanders (I-VT), who sits on the Senate Budget Committee, said “right now the Congress is working off the president’s budget on military spending.” And Politico reported that there was an expectation that negotiations would work off Trump’s requested defense budget — a massive boost to $750 billion. Congress passed a $716 billion defense budget for fiscal year 2019. The House passed a defense budget bill with a $733 billion top line number out of committee this week, despite Republican efforts to increase that figure. If Democrats get their way, domestic funding would be increased proportionally.

But there’s still a lot of work to be done.

The White House is the wild card

The question is where to start. The White House’s fiscal hawks — like acting budget chief Russ Vought and Mulvaney — have been pushing to raise the debt ceiling without a deal on budget caps.

After surpassing the debt limit in March, the Treasury Department has implemented extraordinary measures to keep up with loan payments, like suspending investments in programs like the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. Those measures are only expected to hold up until this fall, at which point budget experts warn the United States could create a global financial crisis by defaulting on payments.

It makes sense that the White House wants to get the debt ceiling done first, to lessen Democrats’ leverage over budget caps negotiations. Pelosi made clear that’s not going to happen, saying the two either have to come simultaneously or the budget caps deal must come first. Even McConnell reportedly told Vought and Mulvaney that their demand was politically infeasible.

But that said, the White House is full of agitators, from the budget director to the president. This year started with the longest government shutdown in US history, after Trump refused for more than a month to sign a spending bill without funding for his border wall.

Eventually he caved, but the shutdown, and the toll it took on the government, remains a major factor in how Congress is approaching spending negotiations going forward. The longer it takes to reach a deal on budget caps, the more Congress will have to rush its debate over funding everything from border security to disaster relief funding.

Until Congress and the White House can agree on budget caps, some of Congress’s biggest spending fights are on hold.

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