Washington is flirting with a debt crisis. No one has a plan to stop it
Washington (CNN) The US government is hurtling toward a potential financial crisis, and no one in Washington seems to know how to stop it.
As lawmakers trade fire over contempt votes and impeachment, there’s been no progress toward reaching a budget agreement or extending the federal government’s ability to borrow before September, when the money runs out. That’s raising the ugly prospect of more than $100 billion in mandatory cuts as well as an unprecedented default on US debt — a situation that could trigger a worldwide economic catastrophe. It’s a mess everyone knows is coming, and yet no one seems to have a plan — at least at the moment — for averting disaster.
“It’s one of those cartoonish anvil-over-head moments,” one senior GOP congressional aide told CNN. “We all look around knowingly like ‘Man, we’re about to get crushed by this,’ but nobody’s really sure how to get out from underneath it right now.”
Even the battle lines aren’t totally clear at this point. There’s brewing frustration between President Donald Trump and congressional Republicans, as well as questions about what House Democrats will agree to.
The fight over disaster relief
The latest sign of the dysfunction gripping Congress came this week, when Republicans and Democrats continued to flounder in months-long negotiations over disaster aid for states recently hit by hurricanes, flooding, and wildfires, typically a subject that can easily win bipartisan consensus but has instead repeatedly fallen apart over unrelated issues.
“If we can’t do this, what the heck can we do on something much bigger?” Senate Appropriations Committee Chairman Richard Shelby asked after a phone call with White House chief of staff Mick Mulvaney. “I hope this is not a preview of coming events.”
The Alabama Republican said he told Mulvaney that the inability to pass the aid bill was not a good sign for the tougher negotiations ahead.
“This is the longest I remember I’ve ever seen something this important not be resolved,” Shelby added. “But I said, ‘This is small — very important, but small — compared to what we’re going to have to face if we don’t get some direction.'”
The US government has careened from one fiscal and spending crisis to another for nearly a decade. But as last winter’s record-breaking shutdown demonstrated, the wild card now is Trump, whose unpredictable negotiating style has at times left Congress flailing. The President has clashed with Democrats for months over including funding for Puerto Rico in the disaster bill, and his administration has further strained talks with attempts to include Trump’s requested $4.5 billion for border security, a move vehemently opposed by Democrats.
Shelby pointed to the $100 billion in automatic spending cuts that will be triggered come October if Congress can’t reach a deal to raise budget caps for discretionary spending — that is, almost everything outside of Social Security and Medicare.
Congress reached a two-year deal to raise the caps in 2017. If lawmakers don’t approve another hike, the budget will have to fall back down to 2011 levels.
Deadlines can drive dealmaking
Lawmakers — and specifically the top Appropriations members in both chambers — have wriggled out of impossible negotiations before, generally managing to pull proverbial rabbits out of their hats at the last moment. And, despite the winter shutdown, the 2018 budget process was the most successful in decades, with more than 75 percent of the government funded through a regular process before the end of the fiscal year.
Unlike the disaster aid package, the spending and debt ceiling negotiations come with a hard deadline — and hard consequences for failing to meet it. For Republicans, it would mean dramatic cuts to defense programs, a central GOP priority. Democrats would have to accept equally painful cuts to domestic programs, which have long been their top priority in talks.
Deadlines, said several aides and lawmakers who talked to CNN for the story, have a way of sharpening the urgency for negotiators on all sides, and a default on US debt is generally considered something members of both parties would prefer to avoid.
But Shelby is worried his colleagues — and the White House — aren’t paying enough attention to the dangers ahead.
One problem: Trump may not realize how damaging a budget crisis and default would be.
Shelby, who raised the issue at Republicans’ regular policy lunch this week, said he and his staff are working on a document with the Congressional Budget Office and the Office of Management and Budget that lays out the effects plainly for all to see. He told CNN once it is finished, he plans to bring it to Trump directly to underscore the stakes.
“I told our caucus yesterday that this will be draconian. They probably haven’t thought about it much because they think we’ll take care of it,” Shelby told CNN earlier this week.
But he acknowledged that time is working against everyone.
“Here it is June coming up, and wow, we’ve got some mountains to climb,” he said.
The three-legged stool
The talks are playing out in the wake of Trump’s tax reform, which increased the deficit. The President — who long ago proclaimed himself “the King of Debt” — has nevertheless promised to raise defense spending, and White House officials have actively sought ways to increase the military budget without Congress, drawing objections from Democrats.
In recent months the White House has toyed with letting the automatic budget cuts take effect in the name of fiscal restraint. It was an idea openly broached by White House representatives at meeting of senior GOP staffers earlier this year, two people familiar with the conversation told CNN. They mentioned other ways to secure money to make up for the defense cuts — none of which were considered plausible by staff in attendance, the people said.
Mulvaney has also made clear in conversations with congressional Republicans that he objects to removing caps on domestic spending, according to multiple senators and GOP aides — though Democrats who control the House have made clear that is a non-starter.
Congressional leaders have attempted to jump start discussion. Senate Majority Leader Mitch McConnell, announced publicly last month the creation of a bipartisan staff-level working group to formulate a two-year budget deal and expressed optimism an agreement could be reached. It was an idea that came in the wake of a previously unreported meeting between Trump, McConnell and House Republican Leader Kevin McCarthy — one that reflected significant unease across the GOP conference about the looming automatic defense cuts, two sources familiar with the meeting told CNN. The staff-level group, which is made up of the policy directors of the four top leaders on Capitol Hill, has met twice, but it’s unclear how much progress has been made.
Democrats, burned by the shutdown, have called for negotiations to stay on the Hill.
“I think that the only way we’ll get a budget is the way we’ve gotten one the last two years, if the President stays out of it,” Schumer told CNN. “I think if you talk to my Republican colleagues, and they told you what they’re telling us, they’d tell you the same thing.”
But Shelby, who has clashed with Mulvaney in past negotiations and has a close and effective working relationship with his Democratic Appropriations counterpart Sen. Patrick Leahy, made clear the White House has to stay involved. Shelby’s efforts to brief and keep Trump in the loop were considered a key reason the President finally agreed to end the shutdown fight.
“We’ve got a three-legged stool,” Shelby said. “Democrat House. Republican White House and president. Republican Senate. We’ve gotta have all those to hold up the stool.”
Lawmakers have until September to keep the government open and head off a repeat of this past winter’s meltdown. That partial shutdown left about 800,000 federal employees unpaid over the holidays, as well as an unknown number of government contractors who did not receive back pay. The shutdown, which originated with a fight over funding for a border wall, ended after staffing issues with air traffic controllers caused flight delays in New York and around the country’s major airports, creating political blowback for the President.
Extraordinary measures are only a temporary fix
Less discussion seems to be going on around the debt issue. Since the first World War, Congress has tried to limit federal borrowing, and has routinely raised the borrowing limit as the US government debt has grown. The debt limit was suspended in 2015, after Republicans danced with default amid a fight with the Obama administration.
The limits went back into effect in March, but the US government has been able to use so-called “extraordinary measures” to keep paying its bills. Those measures are expected to run out in early fall.
Treasury Secretary Steven Mnuchin has called for lawmakers to raise the debt limit as soon as possible, but lawmakers have so far been unwilling to give up leverage over hot-button issues like immigration — though top Democrats have also indicated they’re unwilling to risk US creditworthiness.
“America is not going to welch on its debts and what it owes. So I think we ought not to use that as a political issue,” House Majority Leader Steny Hoyer said Wednesday. “But, and this is a big but, we need to avoid a crisis of shutting down the government as happened under the Republican leadership in the last Congress, which bled over to this Congress. As a result, I am urging that we do both in a bipartisan, constructive way.”
Asked whether that meant he wanted to deal with the debt limit alongside appropriations legislation, Hoyer said he was open to any approach that would get a deal done.
Rep. Tom Cole, an Oklahoma Republican, said Shelby’s warning should serve as a wakeup call for both chambers.
“Senator Shelby is telling everybody in this chamber what they need to know, that we need to get out of partisan gamesmanship and get focused on governing the country: moving Approps bills, taking care of the debt ceiling,” he said.
“Both sides seem to think they can leverage these things into something, and I don’t think you can,” Cole added. “Every time you do, you end up in a government shutdown.”
CORRECTION: This story has been updated to correctly identify Hoyer as House Majority Leader.