The split control of Congress resulting from the 2018 midterm elections is not going to lead to a grand bargain on the budget over the next two years that reduces the federal deficit.
Quite to the contrary, the election results mean that the federal budget will be even more of a hyperpartisan issue than it has been during this Congress and that the deficit is going to increase.
The split control will make it easier for Republicans and Democrats to blame each other for the fiscal sins of the past, the spiking deficits of the future and all of the shutdowns and debt ceiling cliffhangers that will be happening day-to-day.
The Democratic majority will give President Donald Trump an even better political foil than he’s had the past two years if (but more likely when) he doesn’t get what he wants. Instead of just blaming Congress, he’ll be able to criticize the Democrat-controlled House for thwarting his agenda. Even if it’s not true, as far as Trump is concerned, everything from a higher deficit to no wall to no military parade to no space force will be the Democrats’ fault.
The budget bottom line is simple: Senate Republicans will have a very different fiscal agenda than House Democrats, and both houses’ tax and spending to-do lists will be at odds with Trump’s plans. Unless there’s a severe economic crisis that requires a fiscal policy response and allows representatives and senators to abandon their established positions, it’s hard to imagine the three sides being able to agree on much of anything over the next two years on the budget.
Here are my top seven federal budget implications of the 2018 election.
1. Lame Duck Madness. The best chance Republicans now have to do away with the Affordable Care Act and to enact another tax cut will be during the lame duck session of Congress that will begin next week. To do that, however, they first will have to adopt a budget resolution that includes reconciliation instructions to repeal ACA and cut taxes…and the budget resolution and reconciliation bill will have to be adopted before the next Congress begins on January 3. Not including Thanksgiving, Christmas and New Years, that’s only about six weeks to get work done that would normally take three months or more to do. And that doesn’t even include the seven appropriations bills that still have to be enacted by December 7.
2. Trillion-dollar (and rising) Deficits. There will be much talk and lots of finger-pointing but little-to-no action over the next two years on reducing the deficit. It wasn’t going to happen if Republicans retained control of both houses of Congress anyway, but it’s difficult to imagine a scenario where the spending cuts and tax increases acceptable to the GOP will be even remotely acceptable to Democrats.
Unless Wall Street demands changes (the long-expected return of the bond market vigilantes), all of the things most likely to be enacted — think infrastructure — will increase rather than decrease the federal government’s red ink. That means that the latest projections from the Treasury/Office of Management and Budget and Congressional Budget Office showing a more than $1 trillion deficit in fiscal 2019 and 2020 now must be considered minimums.
3. Debt Ceiling Cliffhangers. The current suspension of the federal debt ceiling that expires March 1 will provide yet another opportunity for Trump, Senate Republicans and/or House Democrats to withhold their signature or votes unless they get something they want or to stop something they hate.
The assumption that the Treasury will use the same “extraordinary measures” that have been used in the past to delay the day of reckoning on the debt ceiling may be wrong this time if Trump feels the need to create a crisis that will give him leverage over House Democrats. Even if he ultimately wusses out again and the extraordinary measures are implemented, expect Trump to pound his chest and create uncertainty in financial markets about the debt ceiling in the weeks leading up to the deadline.
Also expect Trump to consider only increasing or suspending the debt ceiling for a short time so he can pound his chest more than once before the 2020 election.
4. Multiple Shutdown Showdowns. The House Democratic majority means that there will now be three players in every appropriations fight and that will tremendously complicate what was difficult negotiations without them.
The negotiations will be even worse if (1) Trump uses them as reelection campaign events and (2) House Democrats and Senate Republicans see a clear possibility that, no matter whether it’s a spending increase or decrease, the other side will be blamed.
It’s hard not to see anything but a continual series of threatened shutdowns under these circumstances. Even if Senate Republicans and House Democrats mutually agree to provide the spending increases the other wants, there will be no guarantee that Trump will go along or that he will sign a bill without demanding his own pound of appropriations flesh.
5. Two Years Without A Congressional Budget Resolution. Voting for budget resolutions has only been barely politically acceptable for most representatives and senators in recent years because it enabled reconciliation to be used and, therefore, a filibuster to be avoided in the Senate. That’s how the Affordable Care Act and the Tax Cuts and Jobs Act were both put in place even though the Democrats and Republicans, respectively, didn’t have 60 votes.
But with Democrats in control the House and Republicans in control of the Senate, there will be few changes to mandatory programs and taxes that will be acceptable to both houses…so there will be no need for reconciliation. That will make the political pain of voting for a budget resolution and its projected trillion-dollar deficits completely unnecessary.
(For those who think reconciliation will be needed for a middle class tax cut of some kind…First, see #1: It might be done during the lame duck. Second, if there isn’t enough Democratic support in the Senate for what the GOP wants and, therefore, to prevent a filibuster, House Democrats won’t agree to a budget resolution that allows reconciliation to be used.)
6. Lots Of Deficit-Increasing Legislation. If they agree on anything, Senate Republicans and House Democrats will demand equal spending increases or revenue decreases for their pet programs. Trump will then want equal treatment for his priorities. An even higher than currently projected deficit (see #2) will be the result.
7. The Next Trump Budget Will Be Totally Meaningless. Trump’s first two budgets were little more than political campaign brochures masquerading as official government documents.
Trump’s next budget will be even more political. With little likelihood that anything he proposes will be taken seriously by the split Congress and with the president’s own reelection well underway by next February, the Trump 2020 budget will be even less of a serious fiscal plan that won’t be taken seriously on Capitol Hill and won’t last long enough to be a major discussion topic on that weekend’s political talk shows.
Follow Stan Collender on Twitter by clicking here on @thebudgetguy.
President Trump tried to sound powerful when he announced that he had ordered his cabinet members to come up with five percent reductions in their fiscal 2020 department or agency budget.
Here’s why Trump’s plan is actually the total opposite of bold.
1. The plan isn’t for the current year (fiscal 2019); it’s for 2020, the budget that Trump is legally required to submit to Congress early next year and won’t start to be implemented almost a year from now. In the meantime, Trump’s own Department of Treasury and Office of Management and Budget project that the deficit will grow by $306 billion to almost $1.1 trillion. Trump isn’t proposing to do anything about that.
2. Trump could have proposed that Congress “un-appropriate” spending in the current year by using the impoundment control procedures specified in the Congressional Budget Act. He didn’t.
3. Trump’s pronouncement was that his cabinet come up with a plan to reduce “discretionary” spending within their agency or department. That’s only about 25 percent — roughly $1.1 trillion — of the total amount expected to be spent in 2019.
(Note: The $1.1 trillion in discretionary spending is roughly equivalent to the total projected 2019 deficit. Trump would have to propose to eliminate all of it to completely balance the budget this year.)
4. If Trump had wanted to propose something impactful he would have included most of the rest of the budget — mandatory spending other than interest on the national debt. But just before the election that would have subjected him to the very politically damaging charge that he was going to propose cuts in Social Security, Medicare and veterans benefits.
5. There is a strong possibility that this wasn’t even the new order Trump made it out to be. Asking cabinet departments to develop different spending-cut scenarios (-2 percent, -5 percent, etc.) is the standard procedure every president uses early in the year to formulate the budget. There’s a good chance, therefore, that the cuts Trump just said he ordered were actually developed around this past June.
In other words, the Trump five percent cut plan was just about the least he could say he would do and still sound like he was doing something.
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Less than a month before the election, about a month before the start of the lame duck session of Congress, a little over about 50 days before the next government shutdown deadline on December 7 and less than three months before the next Congress begins, these 8 things are both keeping me up at night and giving me nightmares while I’m awake.
It’s therapeutic (at least for me) to share them.
1. Trump Will Insist The Democrats Stole The 2018 Election
If Democrats win one or both houses of Congress this November, Trump will insist that it happened because (1) they colluded with the Russians or Chinese, (2) they hacked the election results in all 50 states, (3) illegal immigrants voted in record numbers or (4) all of the above. Trump will say he has information proving that the results weren’t a referendum on him, that he doesn’t plan to change a thing and that he will make the Democrats pay for stealing the election.
Then see #s 5,6, 7 and 8 below.
2. Big Federal Budget Deficits Are Now Permanent
The Trump administration will soon verify what the Congressional Budget Office reported last week. When the U.S. Treasury releases its monthly statement for September, it will confirm that the fiscal 2018 federal budget deficit increased to close to $800 billion dollars this past year and will be at or above $1 trillion for 2019.
But that will be just the beginning. With more tax cuts about to be considered (see #3), a trillion-dollar infrastructure plan likely to be enacted at some point in the next few years, hurricanes and other disasters almost certainly on the horizon and no serious revenue increases or spending reductions likely to be considered, $1 trillion or higher federal budget deficits are now a permanent part of the U.S. economy and American politics. The previous political goal of projecting on paper (let alone actually achieving) a balanced budget in 10 years is now gone…forever.
3. Another Huge Tax Cut Will Happen This Year
I’m increasingly convinced that, during the lame duck, the Senate will take up the tax cut the House passed just before it recessed for the election. My sources on Capitol Hill tell me that preparations are already underway for Congress to quickly adopt a budget resolution at the start of the lame duck just so the Senate will be able to avoid a filibuster on the tax bill.
This will increase the deficit by another $600 billion to $700 billion over the next decade, and much more after that.
4. The Budget Deficit Will Reach $2 Trillion By 2024
There will be an economic downturn at some point over the next few years. Combined with #2 and #3 above, this will increase the deficit to close to $2 trillion.
5. Trump Will Ignore Democratic Subpoenas And Set Off A Huge Appropriations Fight
The common assumption seems to be that, if the Democrats are in the majority in one or both houses of Congress next year, as part of official committee investigations they will inundate the Trump administration with subpoenas for documents and witnesses. Not only do I seriously doubt that the White House will meekly comply with these subpoenas, I expect the president to routinely assert every possible reason that he doesn’t have to do so.
Yes, the courts will then get involved. But I also expect congressional Democrats to use next year’s appropriations process to push the administration to comply. It wouldn’t be shocking, for example, if Democrats threaten the funding for several assistant secretaries and the White House counsel in response to the White House’s stonewalling.
6. Shutdown Showdowns Are About To Become Even More Of A Thing
There will be multiple shutdown fights for two reasons. First, Trump may not agree to full-year funding in any form (a continuing resolution, omnibus appropriation or Department of Homeland Security appropriation) without money for his wall. He’s far more likely to agree to a series of short-term funding bills that allow him to keep raising the issue, especially if he’s able to blame a Democratic majority for the wall not happening. That will set up frequent shutdown threats every year.
Second, see #5.
7. Trump Will Precipitate A Debt Ceiling Fight Sooner Than Expected
The federal debt ceiling was suspended by the Bipartisan Budget Act of 2018 until March 1, 2019, and the overwhelming assumption is that the Treasury will use “extraordinary measures” (the Washington equivalent of getting a cash advance on one credit card to make a payment on another) to delay raise the debt ceiling until September.
But just because Treasury has always used extraordinary measures in the past doesn’t mean it’s guaranteed to use them this time. Trump could easily at least threaten not to use these bookkeeping gimmicks at all or to stop using them at some point before September if the president doesn’t get something (such as funding for his wall, a space force and a military parade) he wants in return.
8. Trump 2020 Budget Will Be An Even Bigger Political Statement
The first two Trump budgets basically were campaign brochures masquerading as official federal documents. The next Trump budget — fir fiscal 2020 budget — will be released as his reelection efforts formally get underway and so will have very little to do with governing. It will be largely forgotten on Capitol Hill within two weeks of it being released.