Ends Meet in Budget Agreement

Update 371: Ends Meet in Budget Agreement;
Further Fiscal Hostilities Postponed ‘til 2021
Like a thunderclap on a sunny day, a budget agreement has appeared almost from nowhere to remove us from threat of a government shutdown or sovereign default this fall.  A compromise between the House and the White House, the deal bears signal progressive gains that are signature Speaker Pelosi. 

Today at noon, the Senate voted 67-28 to go along.  The GOP was badly split, 29-23, with risks for those opposing Trump or committing fiscal surrender — “a codification of a death knell of a Republican Party” per Rep. Mark Sanford — that may cause problems back home for GOP incumbents next year.  

More below on the artful deal. 

Best, 

Dana

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The Senate passed the Bipartisan Budget Act of 2019 earlier this afternoon, thus obviating a government shutdown and a U.S. sovereign default.  Majority Leader McConnell tried to whip GOP support for the bill, but Republicans were split on the measure. Last Thursday, the House passed the two-year budget deal by a 284-to-149 vote, with 16 Democrats and 132 Republicans voting no. The bill now moves to the president’s desk for signature. 

The deal raises spending caps by $320 billion and suspends the debt ceiling until July 31, 2021. Notably, the bill also raises non-defense spending by $5 billion more than defense spending, breaking the parity principle enshrined in the Budget Control Act of 2011 for the first time. 

Per the agreement, annual defense spending is set at $738 billion — a $22 billion increase from last year.  The administration asked for an increase in defense spending to $760 billion, but House Democrats negotiated that number down. The budget agreement sets non-defense discretionary spending at $632 billion — a $27 billion increase from last year. The $5 billon difference here is small but signal. 

The Winners

In the main, the budget deal struck last week is a clear if modest win for Congressional Democrats.  Speaker Pelosi was able to avoid any spending cuts that would have occurred had there not been a deal in place. Additionally, the spending increases, while not “a perfect deal by any means,” per Congressional Progressive Caucus co-chair Pramila Jayapal, ended a “harmful chapter of self-inflicted austerity” in place since the 2011 Budget Control Act (BCA). 

Breaking the parity principle marks a turning point in fiscal politics. In place for almost a decade, the principle states that defense and nondefense spending will be matched dollar-for-dollar. Progressives have been calling on leaders to spend on social needs beyond such BCA constraints — they now have a partner in the White House replicating the New Deal coalition, with the administration representing a 21st century version of Southern Democrat and the GOP outvoted in the center. 

The budget deal could also be considered a win for Trump’s economy as it limits any spending cuts that would have hurt communities across the country. Although it received grumbles from the majority of House Republicans concerned about the deficit, a spending stimulus in an economy with already record-low unemployment won’t hurt a sitting president the year before his election.

The Losers

The deal is bipartisan, but only because the GOP is desperate to avoid another shutdown. Republicans in both chambers have been criticized for their unwavering support of Trump, even for matters which require them to abandon their attachment to deficit concerns. In this case, a slim majority of Senate Republicans lined up to support Trump and pass the deal. In the House, Republicans took the opportunity to show they can think independently from Trump and demonstrate their fiscal priorities, knowing they would be bailed out by Democrats in the majority.

Regardless of House and some Senate Republicans’ opposition, the deal seems to be the last nail in the coffin for the GOP’s small-government platform under a Trump administration. Party disunity on votes this large make it obvious that the biggest loser in this vote was Majority Leader McConnell, who failed to inspire many rank-and-file members to vote for the bill. Unlike earlier this year, conservative members were simply not able to convince the President to take a tougher stance on the once- critical GOP issue. 

Looking Ahead: Appropriations and Beyond

With the passage of the budget deal and sequester cuts being removed, onlookers now shift their focus to the next flashpoint in fiscal policy: the appropriations process. Much like last year, there seems to be a divide along the border wall. Should the House, the Senate, and White House fail to reach a compromise and enact appropriations bills, the government could shutdown after the September 30 deadline. They would need to pass a short term continuing resolution funding the government until a deal is reached. 

Although this scenario is more unlikely today than it was last year, the president has surprised us before with an eleventh-hour funding deal rejection. Should Trump decide there is not enough border funding, or perceive some other political advantage, he may shut the government down again at the beginning of the August recess. If the president decides he will sign off on the budget deal, a show of compromise to avoid a shutdown and another economic stimulus may help his reelection chances in 2020.



Source: Committee for a Responsible Federal Budget

Fiscal Future and the Progressive Agenda 

The deal that is headed to the President’s desk signals the end of Budget Control Act-era fiscal policy, sunsetting sequester and budget caps in place since 2011.  Though today’s Bipartisan Budget Act is not for fiscal hawks, even more dovish stakeholders in the budget process are expressing concern about the spiraling deficit.  Next fiscal year will likely see the nation’s first trillion-dollar deficit and no alarms are sounding.

It is unlikely that fiscal policy — which seems now applied only in hindsight, never prospectively  for example in a proposal by a presidential candidate — will be a flashpoint in the next two years.   A long-term debt reduction plan should be of interest to those who discern a future based on the present course, when some government assistance and services we take for granted can no longer be guaranteed.

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