Trump and Pelosi Strike a Big Budget Deal

Plus, why Democratic voters are worried

White House and Pelosi Strike a Deal to Boost Spending, Raise Debt Limit

President Trump announced Monday afternoon that he had reached a deal with House Speaker Nancy Pelosi and other congressional leaders to raise spending on both defense and non-defense programs over the next two years and suspend the nation’s borrowing limit.



If passed, the agreement would avoid steep automatic cuts set to take effect for fiscal year 2020 and defuse the threat of a possible debt default.

“I am pleased to announce that a deal has been struck with Senate Majority Leader Mitch McConnell, Senate Minority Leader Charles E. Schumer, Speaker of the House Nancy Pelosi, and House Minority Leader Kevin McCarthy — on a two-year Budget and Debt Ceiling, with no poison pills,” the president tweeted. “This was a real compromise to give another big victory to our Great Military and Vets!”

The deal will likely face stiff pushback from fiscal conservatives as well as from Democrats angered over some concessions made by Pelosi and party leaders. But if it passes, it “would amount to an against-the-odds victory for Washington pragmatists seeking to avoid politically dangerous tumult over fiscal deadlines,” Andrew Taylor of the Associated Press wrote before Trump’s announcement. “Nobody can claim a big win, but both sides view it as better than a protracted battle this fall that probably wouldn’t end up much differently.”

Trump and Republicans can point to another year of increased defense spending, while Pelosi and her caucus can say they protected the domestic programs they prioritize. And both sides can breathe a sigh of relief about avoiding a debt crisis that could have shaken markets and the economy.

What’s in the deal: The agreement, according to multiple reports, would:

  • Suspend the debt ceiling through at least July 2021.

     
  • Lift spending levels over the next two years by about $320 billion. That total is $30 billion less than Democrats reportedly had wanted, but it does achieve their desired goal of providing equal-sized increases for defense and non-defense outlays. “In the end, domestic programs would on average receive 4% increases in the first year of the pact, with much of those gains eaten up by veterans increases and an unavoidable surge for the U.S. Census,” Taylor says. “Defense would jump to $738 billion next year, a 3% hike.” But economist Ernie Tedeschi notes that if you look at the deal over two years, the annual spending increases are roughly the same as adjusting actual 2019 spending for fairly low levels of inflation.

     
  • Offset some $75 billion of that increased spending, or about half as much as the administration had sought late last week. Those offsets reportedly include extending caps on future Medicare spending and raising customs user fees.

     
  • Allow the decade-long spending caps put in place under the 2011 Budget Control Act to expire. Those caps, meant as an enforcement mechanism for a deficit-reduction deal, were lifted repeatedly over the following years as lawmakers found they couldn’t stomach the required “sequestration” cuts. This would be the fourth deal since 2013 to bust through the caps.

House Democrats hope to pass the deal before they adjourn for a six-week recess on Friday, setting up the Senate to pass the legislation before it departs at the end of next week.

Here’s what else you need to know:

Fiscal hawks are apoplectic. Annual budget deficits are rapidly rising toward $1 trillion — the federal government must borrow a quarter for every dollar it spends, the AP’s Taylor pointed out. The spending levels in this deal would only accelerate that climb, adding about $2 trillion to projected debt levels over the next decade. “[T]his agreement is a total abdication of fiscal responsibility by Congress and the President,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “It may end up being the worst budget agreement in our nation’s history, proposed at a time when our fiscal conditions are already precarious.”

Trump’s support is critical. “It’s very important that we take care of our military. Our military was depleted. In the last two-and-a-half years, we’ve un-depleted it, OK, to put it mildly,” the president told reporters earlier on Monday. “We need another big year.” He has told aides that he plans to have a fight with Congress over spending if he wins reelection, according to The Washington Post, but he’s backing this deal — and the strength of his support will be key to lining up GOP votes. At the same time, outcries from right-wing media and lawmakers have in the past led Trump to back away from such bipartisan agreements, and House conservatives are calling on Trump to reject the deal. Lawmakers know that he hasn’t signed off until he actually puts pen to paper.

Democrats may be taking a risk, too. Bloomberg’s Sahil Kapur noted that the deal could come back to bite Democrats if they defeat Trump in the 2020 elections. “If Democrats win,” he tweeted, “this may force the next president to spend their first six months battling a storm of debt mania, which Republicans historically ignite when they're out of the White House.”

Also, the White House sought assurances from Pelosi that coming spending bills won’t contain controversial “poison pills,” meaning Democrats can’t try to eliminate the Hyde Amendment, which prohibits the use of federal funds for abortion, or place additional limits on the administration’s ability to transfer money for a construction of a border wall. Many Democrats won’t be pleased about those parts of a deal. Pelosi also conceded in her attempt to keep $22 billion in funding for a VA program allowing veterans to see private sector health care providers from counting against the non-defense budget.

Lawmakers still have work to do. Congressional leaders still must line up votes to ensure their deal passes. Assuming it does, lawmakers will then need to pass spending bills — including the contentious legislation to fund the Department of Homeland Security — before the end of September of again face the prospect of a partial government shutdown.

Big Drop in Corporate Tax Rates and Revenues

A new analysis by The Wall Street journal finds that the median effective global tax rate for S&P 500 companies dropped by more than five percentage points after the 2017 tax cut package went into effect. Two years ago, the firms paid a 25.5% effective tax rate, but in the first quarter of 2019, that rate fell to just 19.8%.

“Much of the decline is coming because fewer firms are paying rates at the highest end,” say the Journal’s Theo Francis and Richard Rubin.

Those lower rates translate into less revenue for the federal government. “So far this fiscal year, the federal government has collected $164 billion in corporate taxes, up 2% from the prior year as the economy continues growing, but 26% below where they were in the comparable period before the tax law took effect,” Francis and Rubin write.

Wealth Taxes and Medicare for All Are Popular – but Democrats Are Worried They Could Backfire

Polls show that some of the Democratic Party’s most progressive policy proposals – including Medicare for All, free college tuition and a new tax on wealthy households – are broadly popular with American voters. But many Democratic voters are worried that these proposals could turn into political liabilities in the 2020 election, according to a report from Jim Tankersley and Ben Casselman of The New York Times.

The fear, voters told Tankersley and Casselman, is that in the current polarized political environment, opponents of those policies will succeed in portraying them as too far to the left, alienating moderate voters and boosting the chances of re-election for President Trump.

“In terms of progressive policy, one of the big things we’re finding is it’s not opposition we’re fighting, it’s cynicism. People don’t think it can happen,” Democratic pollster Celinda Lake said.

The numbers: Public support for the policies is pretty clear. In a new poll, the Times found that 66% of voters supported a 2% tax on households with a net worth over $50 million, a proposal that has been floated by Democratic presidential candidate Sen. Elizabeth Warren (D-MA). Even a majority of Republicans expressed their support for this idea.

Medicare for All and free college tuition also received majority support — 58% and 59% respectively — though neither proposal is backed by a majority of Republicans.

The reasons why: Some poll respondents said it was becoming increasingly obvious to voters that at a time of rising economic inequality, the country’s wealthiest citizens need to pay higher taxes. More cynically, Republican strategists said Americans approve of tax-the-rich proposals because they see it is as something of a free lunch, gaining benefits paid for by someone else.

What’s next: Democratic voters seem torn about their priorities. Many are attracted to progressive proposals, but that hasn’t given liberal stalwarts like Warren an advantage over presidential frontrunner Joe Biden. The reason, Tankersley and Casselman say, is that so many Democrats are worried about successful attacks from the right, which could cost them the White House next year.

“I would like someone more radical, but because the situation is so dire, I think Joe [Biden] is our safest bet to beat Trump,” one Florida Democrat said. “I used to think that policy was more important, but because of the stinging defeat that we had, I don’t trust that anymore.”

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