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‘It could all go terribly wrong’: Congress braces for next fiscal cliff

POLITICO logo POLITICO 4/2/2019 By Sarah Ferris
Steven Mnuchin et al. standing next to a man in a suit and tie: Administration officials, led by Treasury Secretary Steven Mnuchin, are pushing for a “clean” debt ceiling hike that extends the federal borrowing limit without making other policy changes. © Chip Somodevilla/Getty Images Administration officials, led by Treasury Secretary Steven Mnuchin, are pushing for a “clean” debt ceiling hike that extends the federal borrowing limit without making other policy changes.

A looming battle between President Donald Trump and Democrats over government spending and the debt limit could make the 35-day government shutdown look like a blip.

A series of budget deadlines converge in the coming months that could leave Washington on the precipice of another shutdown, $100 billion in automatic spending cuts and a full-scale credit crisis. And lawmakers are openly worried about stumbling over the edge.

“It could all go terribly wrong,” House Budget Committee Chairman John Yarmuth (D-Ky.) said.

Some top Democrats have begun quietly pushing for a grand bargain to simultaneously raise the debt ceiling and Congress’ stiff budget caps — avoiding market turmoil and staving off harsh cuts to domestic and defense programs, according to multiple lawmakers and aides.

But the White House, focused on Trump’s reelection bid, is resisting talk of another massive deal that could cost as much as $350 billion over two years. Administration officials, led by Treasury Secretary Steven Mnuchin, are instead pushing for a “clean” debt ceiling hike that extends the federal borrowing limit without making any other policy changes.

The fiscal fights will reach a boiling point this fall — around the same time that Congress must pass its annual funding bills, which is guaranteed to dredge up the same border wall fight between Trump and Democrats that sent the government sputtering into a five-week shutdown.

By September, lawmakers could be faced with a fiscal cliff rivaling that of 2011, when another divided government nearly defaulted on its debt.

“This is the Congress of the United States. Of course there will be a cliff,” said a senior Republican lawmaker involved with the budget negotiations.

The conflict is still at arm’s length for most of Washington. Talks between House and Senate leaders have only just begun, and while there's some hope that a deal could come together as soon as this spring, neither party has finalized its strategy.

Senate Majority Leader Mitch McConnell and Speaker Nancy Pelosi are confident they can avert a doomsday scenario in which the U.S. government fails to pay its bills for the first time in history, according to lawmakers and aides. Senate Republicans eager to defend their majority in 2020 will be in no mood for any shenanigans surrounding the debt limit.

Officials in both parties say they’re committed to reaching a deal to avoid sequestration and lift the budget caps. Without a bipartisan agreement, the Pentagon would be forced to slash $71 billion from the next fiscal year’s budget, with an additional $55 billion cut from domestic programs.

The White House, however, isn’t on board.

“We’ve been saying that we should move beyond these unaffordable, dollar-for-dollar caps deals that hold defense spending ransom to billions of dollars in wasteful discretionary spending,” a senior administration official said.

And with an erratic Trump still demanding money for his southern border wall and angry about accepting a previous deal to boost spending, some lawmakers fear how the White House will handle such a fraught moment.

“My biggest concern is that there are irrational people who are willing to risk the country’s financial status for hyperbolic gain and that there are folks out there who’ve forgotten compromise.” Rep. Mike Quigley (D-Ill.), an Appropriations Committee member, said in an interview.

The first key question for Democrats and Republicans is whether to try to strike a deal that would lift the debt ceiling and budget caps at the same time. Entangling the two — in theory — would offer just enough incentive for both parties to hold their noses and ink the deal.

“That’s what deals are for — to put some things in that one side doesn't love and some things that the other side doesn't love,” said Rep. Debbie Wasserman Schultz, a top Democratic spending negotiator. “Sweeteners and bitter pills for both — and hope that we get there.”.

A broader accord could also relieve some pressure on party leaders in both the House and Senate. Republicans, for instance, would be hard-pressed to vote against boosting the Pentagon budget, while Democrats rarely, if ever, vote against raising the debt limit.

That could deliver just enough votes for an otherwise unpopular budget deal — expected to total as much as $350 billion over two years, aides say — that will inevitably become a partisan battle over funding in the first full year of a Democratic House and Republican Senate.

House Majority Leader Steny Hoyer has told other Democratic leaders that they should not rule out a broader deal.

“It should remain an option to do them together and remove two major drivers of uncertainty at the same time before that uncertainty metastasizes,” a Democratic aide said of his thinking.

But the tactic could also backfire.

Democrats say they can’t rule out the possibility that Trump would deploy the same “shoot-the-hostage” strategy that he did during the border fight, when he embraced the shutdown as a nod to his conservative base even after Congress refused to fund the wall.

Border security will again be in play this year. Trump demanded $8.6 billion for a border wall with Mexico in his latest budget plan, even as the fate of his emergency declaration at the border lies with the courts.

As Trump embraces the 2020 campaign in earnest, he could easily decide to demand border funding as part of the broader deal — effectively daring Democrats to risk international financial turmoil if they refuse to grant money for wall construction.

The risk is heightened, some lawmakers say, by Trump’s circle of advisers, including acting chief of staff Mick Mulvaney, who as a congressman threatened to refuse to raise the debt limit in 2011 until then-President Barack Obama agreed to deep spending cuts.

And Trump’s own budget chief, Russ Vought, told senators during his confirmation hearings that he supported attaching spending cuts to debt ceiling hikes.

Vought — who was only narrowly confirmed when he joined the administration — has also indicated that he could deploy some budget tricks to guarantee funding for the Pentagon, regardless of the threat of automatic spending cuts set to take effect at year’s end.

The stakes are higher — along with the levels of anxiety in both parties — after the longest shutdown in U.S. history. This time, Trump could fuel an international financial crisis if the government breached the debt ceiling.

“I’m fearful. It’s going to be really ugly,” said one House Republican appropriator, who has been involved with past talks.

Publicly and privately, the White House has said it wants a no-drama debt ceiling lift. That would mean none of the spending cuts that Republicans have demanded in past years. But this time, Democrats see the debt limit as a potential pressure point to persuade Trump to agree to another massive budget agreement.

The administration has indicated to lawmakers that it wants to delay any budget deal beyond the Sept. 30 government funding deadline to maximize its leverage, ensuring fights over a possible shutdown, automatic spending cuts and debt ceiling align toward the end of the year.

Meanwhile, another little-known math problem could severely complicate Congress’ ability to produce a two-year budget deal: the $350 billion budget boost being discussed could actually cost more than $2 trillion on paper.

Because lawmakers would be technically phasing out the 10-year Budget Control Act sequester, its cost would not only include the two years' worth of spending hikes, it would also account for many years of future projected spending increases, to the tune of hundreds of billions of dollars that the government had "saved" during the sequester.

The final cost, as much as $2 trillion over a decade, according to a source familiar with the process, would even exceed the cost of the GOP tax law.

Nancy Cook and Caitlin Emma contributed to this report.

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