US President Donald Trump (front), with vice-president Mike Pence(rear left) and speaker of the House Nancy Pelosi (rear right). Picture: REUTERS/DOUG MILLS
US President Donald Trump (front), with vice-president Mike Pence(rear left) and speaker of the House Nancy Pelosi (rear right). Picture: REUTERS/DOUG MILLS

Washington — US President Donald Trump has once again shoved aside past Republican orthodoxy on debt and spending as he announced a budget deal with House speaker Nancy Pelosi that likely ushers in a return to trillion-dollar deficits.

Trump once said he would eliminate the $22-trillion federal debt, but the annual budget deficit is on track to top $1-trillion a year — swollen by bipartisan spending increases and his tax cuts — with no real expectation of a change in trajectory any time soon.

The deal, which must still clear Congress, ends the automatic budget cuts enacted as a result of a showdown over the debt limit in 2011, when the new Republican majority in the House held federal borrowing authority hostage until president Barack Obama agreed to a spending straitjacket.

The automatic spending cuts, known as the sequester, were intended to provide an incentive to cut a bipartisan grand bargain on reducing the national debt, but those efforts were buried long ago.

Under the terms of the agreement, Republicans managed to secure $738bn in defence spending for 2020 and $741bn for 2021, including funds for overseas operations that are not  subject to budget caps, while Democrats got $632bn in 2020 and $635bn in 2021 for domestic spending. That amounts to a $320bn boost in spending over two years compared to lower budget caps that would have slashed spending at the end of this year.

Trump has given a nod to budget cutting, but since taking office he has mostly cowed Republican deficit hawks into silence by prioritising funding the US defence department and cutting taxes.

Pelosi, meanwhile, has manoeuvred to increase spending on domestic discretionary programmes by more than $100bn since Trump took office.

Incentives

Both sides have political incentives to let the federal dollars flow.

For a Republican president whose focus has shifted to his re-election bid, the deal helps safeguard his strongest asset: the roaring US economy. With this deal, market concerns about the government hitting the debt ceiling will be delayed until well past the 2020 election, as would any threat of automatic spending cuts at the end of this year that might crimp growth.

Trump has proposed huge spending cuts in each of his budgets — which were largely ignored by law makers of both parties — and this deal shelves any effort at belt-tightening until Trump’s second term or a Democratic president takes office.

For Pelosi, the deal allows her to secure increased domestic spending for two years even though Democrats do not control the Senate or the White House

The president is already touting the fact that the deal would bring record defence spending, something that appeals to defense hawks in his party. “I think the president realises that he’s not going to sacrifice the security of this nation to please a few people,” said Senate appropriations chair Richard Shelby, an Alabama Republican. Shelby noted the GOP needs Democratic votes to pass the budget deal and they would not  support cutting social programmes.

Republican Senator John Cornyn of Texas called the outlines of the deal “not ideal” but said it would be worse to not fund the government or defence. “Obviously you’ve got to pay a certain amount of ransom,” he said.

The ranking Republican on the House armed services committee, Mac Thornberry of Texas, praised the agreement for increasing defence spending — though he wanted more. “We cannot underestimate the incredible benefit of funding our troops on time for the second year in a row, something Congress hasn’t done in recent memory.” 

Other Republicans ripped it, and many had urged Trump to stick to the spending caps. Representative Mark Walker of North Carolina made his distaste known by tweeting a picture of The Joker standing in front of a fire.

“With more than $22-trillion in debt, we simply cannot afford deals like this one,” said Representative Mike Johnson, the head of the conservative Republican study committee caucus.

For Pelosi, the deal allows her to secure increased domestic spending for two years even though Democrats do not control the Senate or the White House. The roughly $80bn in savings she agreed to mostly extend policies on Medicare and customs fees rather than representing some new round of fiscal discipline that would be felt by voters. And she nixed a White House attempt to continue budget caps for two years beyond 2021, bringing to an end one of the major accomplishments of the Tea Party era.

Spending input

The budget agreement will also gives House Democrats a chance to craft 12 annual spending bills with more Democratic input than the party has enjoyed since losing power after the 2010 elections — albeit with the vague stipulation that they won’t try to put “poison pills” in the bills. Republicans sought assurances that the spending bills won’t expand government funding for abortion and won’t restrict how border security funds can be used.

Pelosi could face resistance from progressives who want to use the budget fight as leverage for assorted stalled liberal priorities, and from more moderate members wary of adding to the nation’s red ink.

Senate majority leader Mitch McConnell pointedly declined credit for the deal by calling it an agreement between Pelosi and the White House in his statement. Nonetheless, he has a lot to like in the deal.

The Kentucky Republican’s flock includes a handful of senators facing tough re-election fights next year with Democrats needing to win four seats to take control of the chamber. The last thing he wants is another government shutdown or a debt limit debacle, and the agreement avoids that risk.

And should Trump lose in 2020, a Democratic president may need to come to McConnell hat-in-hand to cut a debt deal — a prospect causing alarm from some Democratic Senate watchers on Monday.

“Wait, Dems are going to clear the decks on government funding and debt ceiling for the remainder of Trump’s term, forfeiting all leverage, but set up a major crisis point for Republicans in the first summer of a potential Dem presidents’ term?” tweeted Adam Jentleson, former spokesperson for Harry Reid. “This seems like a very bad idea.”

Bloomberg