President Trump tweeted Monday night he was “pleased” to announce a budget deal that raises the debt ceiling and sets federal spending caps for the next two years.
The $320 billion deal followed months of posturing and behind-the-scenes talks. It will add hundreds of billions to the deficit and represents the latest piece of evidence that Washington policymakers in both parties have turned away from any worries about the debt.
So who won out in the negotiations, and who got left behind?
Speaker Nancy Pelosi (D-Calif.)
Pelosi maneuvered deftly through the negotiations to secure a deal that won Democrats one of their top priorities, a significant increase in domestic spending.
The $27 billion in higher nondefense, discretionary spending will go toward health, education, science research, housing and other areas of concern to Democrats.
Pelosi also managed to break the “parity” principle that has defined budget negotiations for the better part of a decade. Under the principle, defense and nondefense spending is supposed to match dollar for dollar.
But in this deal, the increase in defense spending is $5 billion less than the increase in nondefense spending. That’s important for Pelosi, whose caucus includes progressives balking at greater and greater defense spending.
The Trump economy
Trump entered the talks hoping to cut spending, and he certainly didn’t want a deal that increased domestic spending more than the Pentagon’s budget.
He’s taking criticism from conservatives who say he should have done more to reduce deficits; The Drudge Report spent much of the day with a picture of Trump shaking Pelosi’s hand and a headline warning of more spending and debt.
Yet Trump doesn’t emerge as a loser in the deal given the likelihood that the agreement will further boost the U.S. economy — which is greatly linked to his reelection chances.
The $49 billion in deficit-financed new spending next year will further stimulate an economy that already has low unemployment, providing momentum as effects from the GOP tax cuts fade away.
The deal also prevents any problem with the debt ceiling and greatly reduces the possibility of a shutdown — two things the White House wants to avoid.
Strong economies can carry a president to reelection, and the budget deal makes it more likely that Trump will have economic winds behind him next November.
Treasury Secretary Steve Mnuchin
House GOP members practically laughed Mnuchin out of a meeting two years ago when he begged them to raise the debt ceiling. Do it “for me,” he told the room of skeptical partisans, who at that point controlled the House.
This week, Mnuchin led a successful negotiation to avert a debt ceiling disaster, secured a significant increase in defense spending, paved the way for a smooth appropriations process and reduced the chance of another government shutdown going into the 2020 elections.
He also appeared to win an internal fight with others in the administration pressing for a harder line on spending. Through it all, he kept Trump on board.
It’s a remarkable victory by someone still seen as a neophyte in Washington policymaking.
When Trump was voted into office, military spending stood at roughly $611 billion a year. In 2020, it will be $738 billion.
Those investments are going into bigger, better boats and airplanes, higher pay for troops, and more military personnel, not to mention research.
There is more money for domestic programs from the deal, too. House Democrats are adding funds for the National Institutes of Health, the National Science Foundation, the National Endowment for the Arts and the Corporation for Public Broadcasting to their spending bills.
But the military spending still stands out.
Before the boost, the U.S. was already spending more on defense than the next eight countries combined. With the new figure, it may be on track for an even bigger piece of the pie.
“A disgrace.” “The worst in a decade.” “Blowout.”
That’s what just a few conservatives were uttering about the deficit-busting deal.
Increases in discretionary spending under Trump are on pace to average 4 percent a year, higher than the 3 percent increases President Obama managed to muster at the height of the Great Recession, according to The New York Times.
After convincing Trump to shut down the government over demands for his wall late last year, conservative lawmakers were unable to convince the administration to take a tougher line this time.
It’s partly a reflection of Democrats having leverage with the House majority. But it also reflects a general tilt away from deficit reduction by the right and a lack of power from those conservatives still demanding spending cuts.
If Mnuchin emerged as a winner, Trump’s acting chief of staff was the loser.
Mulvaney saw himself sidelined in the budget negotiations after calling for deep cuts to nondefense spending. Even congressional Republicans balked at Mulvaney’s proposed cuts, which would have brought back automatic spending cuts known as the sequester.
In early meetings, Democrats pointed their fingers at Mulvaney for blowing up progress and setting up new obstacles.
When Trump decided it was time to get serious about moving the talks forward, he chose Mnuchin as the lead negotiator, casting Mulvaney aside.
The deficit isn’t an academic problem, but a generational one.
Deficit hawks have long discussed how today’s growing debt means the next generation will have to find the solution. This deal just makes that clearer.
The 2019 deficit is on track to surpass $1 trillion. The new budget deal sets the government on track to add $1.7 trillion to the deficit over a decade, nearly as much as the $1.9 trillion GOP tax cut, according to the Committee for a Responsible Federal Budget.
The debt burden, already on track to hit 92 percent of gross domestic product in 10 years, will now be on track to hit 97 percent in the same time period.
The Congressional Budget Office estimates that interest payments alone will eclipse combined defense and domestic spending by 2046. By that time, the government would need to borrow an average of 7.9 percent of its total economic output just to pay its bills.