(Bloomberg) -- Congress and the White House are on the brink of an agreement that would suspend the debt limit until July 31, 2021 and increase government spending for two years, according to people briefed on the discussions.
The deal that is in the final stages of negotiation would offset about $75 billion of the higher spending levels in the agreement, giving the Trump administration and Republicans about half of the savings they sought, the people said.
The question remains whether President Donald Trump, who’s been briefed on the outline, will support it. Trump told reporters Monday that his administration is having “very good talks” with congressional Democrats.
Time is running short for the House to vote on the package, which is being negotiated by House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin. House members are scheduled to begin a six-week recess on July 26.
The spending increase that Pelosi and Mnuchin have tentatively agreed to would raise current budget caps by $320 billion over two years. The increase is $30 billion less than Democrats sought.
If split evenly over two years, that would equal a $17 billion increase for defense and $17 billion increase for domestic programs in 2020 over 2019 levels, giving Democrats the parity they sought for increases in both categories of spending. Trump officials sought to partially offset those increases with savings from entitlement programs like Medicare and Medicaid that are not subject to annual budget caps.
With the new spending and limited savings, the deal will likely push the annual budget deficit over $1 trillion next year.
Four people confirmed that a deal is imminent on condition of anonymity because talks are still underway.
Earlier this month, Mnuchin warned that the U.S. risks missing debt payments in September -- before lawmakers are scheduled to return to Washington after their summer recess.
Even with the contours of a deal emerging, the Treasury bill market continues to show signs of concerns about the debt ceiling, with pricing dislocations appearing around securities maturing close to potential crunch dates in September and October.
The White House late Thursday floated a menu of savings options worth $574 billion from which Pelosi could choose what to include in the deal. Pelosi resisted offsetting any of the spending increases, and the compromise emerging Monday suggest that Trump officials will get about half of the $150 billion in savings they sought.
Part of those savings will come from extending caps on Medicare spending a decade from now and customs user fees, a person familiar said.
The White House offer also proposed extending caps on defense and non-defense discretionary spending for 2021 and 2022 to save another $516 billion, but this request has been left out of the final deal, two of the people said. That means the budget caps that have been in place since 2011 will be allowed to expire, after having done little to restrain spending after lawmakers routinely amended them.
Though Trump in the past has decided last minute to scuttle other deals negotiated on behalf of his administration, on Monday he said: “we’re doing pretty well on a budget.” Trump hasn’t publicly set out a position on spending levels or cuts, but he did say that military funding is important.
The spending cap only applies to a portion of the overall $4.5 trillion federal budget. While the budget deal doesn’t have to be included with a measure to raise the debt limit, lawmakers want it to be addressed soon so Congress can pass appropriations bills before the new fiscal year begins Oct. 1. Otherwise they will have to pass a stopgap spending measure to prevent a government shutdown.
If Congress doesn’t lift the budget caps that limit government outlays, current law would trigger automatic cuts at the end of the calendar year.
Democrats are seeking discretionary spending of $1.295 trillion in 2020 -- including funding for defense and other government agencies outside of mandatory programs such as Social Security. That would be a $50 billion increase over this year’s budget, and they’re likely to get much of that in the final deal.
Even with a budget caps deal enacted, Congress will still need to pass spending bills detailing the outlays within the caps to avoid a government shutdown when the new fiscal year begins Oct. 1. Democratic versions of the annual spending bills have provisions aimed at allowing federally funded groups to promote abortion and stopping Trump from building a wall on the southern border.
As part of the broader negotiation, the White House sought assurances from Pelosi that she will block her party’s attempt to include such provisions in future spending deals. One of the people familiar with the talks said that such assurances were made.
Pelosi had also sought to keep $22 billion needed for veterans’ health from counting toward that budget cap. People familiar with the negotiations say she’s unlikely to get that request.
One of the structural changes included in the administration’s savings offer was a drug pricing plan that the White House said would save $115 billion, but that measure was not included in the final deal, the people said.
The broad outline of the emerging deal brought condemnation last week from GOP lawmakers and conservative groups like the Club for Growth, potentially limiting how many House Republicans will back the deal.
The Republican Study Committee, a large group of GOP House members, said the size of the spending increases and lack of offsetting savings were unacceptable.
“Republican negotiators from Congress and the White House cannot allow such a deal to proceed, particularly when the end result will be a Democratic-led crusade to use poison-pill spending riders to undercut the White House’s deregulatory agenda, homeland safeguards and pro-life policies,” the group said in a statement last week.
The non-partisan budget watchdog Committee for a Responsible Federal Budget said the spending increases would likely add $2 trillion to the long term debt when interest costs are factored in. That would mean Trump will have overseen a 22 percent increase in discretionary spending during his first term, according to a statement Monday from CRFB President Maya MacGuineas.
“As we understand it, this agreement is a total abdication of fiscal responsibility by Congress and the President,” MacGuineas said. “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.”
(Updates with Trump quote beginning in the third paragraph.)
--With assistance from Riley Ray Griffin, Alexandra Harris, Jack Fitzpatrick and Josh Wingrove.
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