By Kate Davidson and Kristina Peterson
The protracted spending impasse that ended Friday, following the
longest government shutdown in U.S. history, was just a prelude to
other fiscal fights looming for the White House and Congress this
year.
Lawmakers must once again raise the federal borrowing limit by
late summer or early fall, and reach a new budget deal by the end
of September to avert another government shutdown and the return of
spending caps enacted in 2011.
The path may be bumpy, but the ultimate outcome appears to be a
foregone conclusion: Lawmakers will likely agree to increase
government spending again.
The first phase begins next month when the White House releases
the president's fiscal year 2020 budget, which is expected to
propose aggressive cuts to nondefense discretionary spending
similar to his first two budget proposals. The administration
expects to release an overview March 11 followed by a more detailed
document March 18.
President Trump last year asked his cabinet members to find ways
to cut their department budgets by 5%, following news that the $1.5
trillion tax cut had contributed to a 17% increase in the federal
budget deficit in fiscal year 2018, which ended Sept. 30.
Republicans, however, weren't able to advance Mr. Trump's
proposed cuts even though they controlled both chambers of
Congress. Last year, they agreed to a bipartisan deal to boost
government spending by $300 billion over two years above the limits
set in 2011.
That deal expires in October, and congressional leaders will now
have to negotiate new overall spending levels for fiscal year 2020,
which starts Oct. 1. If they don't reach an agreement, automatic
spending cuts known as the sequester will kick in, lowering
discretionary spending by $125 billion in fiscal year 2020, a 10%
reduction from 2019.
Congress passed two-year deals in 2013 and 2015 to prevent the
sequester from taking effect, and is likely to reach an agreement
again. But the recent government shutdown and fight over border
security portend difficult negotiations.
"This battle's nothing compared to what's about to come," said
Rep. Mario Diaz-Balart (R., Fla.), a senior member of the House
Appropriations Committee. Mr. Diaz-Balart said Democrats' takeover
of the House in January could add more friction to an already
tumultuous budget process.
House Budget Committee Chairman John Yarmuth (D., Ky.) said
Democrats would be seeking parity between military and nonmilitary
spending, a point of contention in previous budget negotiations.
Democrats view the most recent two-year budget deal, struck when
they were in the minority of both chambers, as the starting point
for the next negotiations, he said.
"It would be pretty crazy for Republicans to think they could
get a better deal from their perspective and it would be stupid for
us, now in the [House] majority, to think we can't get at least as
good a deal as that," Mr. Yarmuth said.
The negotiations will take place this year against a backdrop of
rising government deficits that are set to top $1 trillion a year
by 2022, according to the Congressional Budget Office.
Federal outlays rose 4.4% in the 2018 calendar year and
government receipts declined 0.4%, the Treasury Department said
Wednesday, reflecting last year's spending deal and tax cut. The
gross national debt this week also hit a new milestone, at $22
trillion.
"Is it a moment for a grand bargain?" asked Maya MacGuineas,
president of the Center for a Responsible Federal Budget, referring
to a bipartisan deficit-reduction agreement. "In terms of the
fiscal situation, yes. In terms of the political environment,
no."
Also on the fiscal calendar this spring: raising the federal
borrowing limit, also known as the debt ceiling.
Congress in 2018 voted to suspend the limit through March 1.
After that, it takes effect again and the Treasury will begin using
so-called extraordinary measures to manage its cash flow so it can
make on-time payments to bondholders, Social Security
beneficiaries, government employees and others.
The Bipartisan Policy Center has estimated those measures will
last at least though midsummer, while others have said they could
last into the fall. But at some point, they won't be able to
prevent the government from bumping into the debt ceiling, meaning
it will have to be raised or Treasury will be unable to pay all its
bills.
In recent years, down-to-the wire debt-limit negotiations have
raised concerns that the U.S. could default on its debt, alarming
investors.
Mr. Trump and Treasury Secretary Steven Mnuchin have said they
were open to eliminating the limit, but the president has shown he
can be unpredictable in his negotiations with Congress.
"The ramifications of not acting on the debt limit on time would
be much, much more serious than a government shutdown," said Shai
Akabas, BPC's director of economic policy. "If we are still in this
state of loggerheads between the two parties as we've seen over the
last [two months] on fiscal issues, and the debt limit enters into
the arena at that point, we will get a lot of statements and tweets
that make the market quite uncomfortable."
Write to Kate Davidson at kate.davidson@wsj.com and Kristina
Peterson at kristina.peterson@wsj.com
(END) Dow Jones Newswires
February 16, 2019 11:14 ET (16:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.