Spending Caps Fight Exposes Both Parties' Weaknesses

Spending Caps Fight Exposes Both Parties' Weaknesses

The Democratic party spent the past eight years blasting Republicans in Congress for their fiscal hypocrisy, and their attacks resonated because they were true. Republicans had criticized President Obama in 2009 and 2010 for his profligacy, and then, after taking control of the House, Senate, and White House in successive elections, not only offered no viable path forward, but made the problem worse. 

Now it’s the Democrats’ turn to show they have no plan matching their rhetoric. They took control of the House in the 2018 mid-term election, but earlier this month party leaders announced they would not write a full-fledged budget because they can’t pass one, no matter its formulation. Republicans would oppose whatever the Democrats would come up with (just as the Democrats voted in unison against GOP-crafted budgets), and the Democratic caucus is too divided to get anything through the House on its own. The progressive wing, energized by several new members elected last November, is itching to push for higher spending on scores of initiatives, while moderates in the party are wary of supporting higher spending without offsets. Many Democrats believe tax hikes are necessary but few want to propose them because of their fear of political attacks by Republicans.

After dropping plans to write a fiscal blueprint, House Democratic leaders tried to shift toward a more practical, short-term objective, which is to raise the caps on appropriated spending for fiscal years 2020 and 2021. In early 2018, President Trump struck a deal with Congress to raise the caps in 2018 and 2019 by nearly $300 billion, but the caps in place for 2020 and 2021 remain at the levels enacted in the Budget Control Act of 2011, and are far below the funding that was provided over the past two years. The defense and nondefense caps for 2020 are a combined $126 billion below the spending levels allowed for 2019. If the caps are not raised, and the government is funded at current levels, automatic cuts would eliminate the $126 billion breach.

But even this less ambitious approach to budget policy is proving to be problematic. The cap proposal drafted by Reps. John Yarmuth and Nita Lowey, chairs of the Budget and Appropriations Committees, respectively, lacks the votes to pass. It would raise the caps in 2020 and 2021 by a combined $358 billion, which is well above the levels needed to turn off the automatic cuts from the current caps. If enacted, the higher caps would set a floor below appropriated spending beyond 2021 too, and thus increase deficits over ten years by $2 trillion.

The party’s progressive activists aren’t satisfied with the Yarmuth-Lowey proposal. They say it provides insufficient spending for domestic appropriations and too much for defense. Meanwhile, the party’s moderate faction worries about adding $2 trillion to the projected ten-year deficit, which the Congressional Budget Office (CBO) expects will reach nearly $12 trillion even without added spending for appropriations.

Republicans are enjoying watching the Democrats flounder, but that doesn’t mean the GOP has a coherent counteroffer.

The Trump administration proposed a budget that would leave the 2020 and 2021 caps in place, even though there is wide consensus that the 11 percent cut to defense in 2020 would be dangerous and unacceptable. To get around the problem, the administration would move $175 billion in defense spending over the next two years into the Overseas Contingency Operations (OCO) account, which is supposed to fund temporary war-fighting and is exempt from the defense cap. At the same time, the administration says there is no need to raise the cap for domestic appropriations because its budget plan provides sufficient cuts to stay within it.

Unfortunately for the administration, Senate Republicans have no interest following its lead on the caps. In fact, many Republicans, especially those on the Appropriations Committee, want a bipartisan deal that allows for higher spending for certain domestic accounts. This helps explain why Majority Leader Mitch McConnell — always a good indicator of his caucus’ views — has opened talks with House Speaker Nancy Pelosi on a caps deal despite administration officials saying a short while ago that a bipartisan deal is unnecessary and unwanted.

McConnell’s is the smart political play. There’s no realistic scenario which doesn’t lead to an increase in the caps on appropriations. House and Senate Republicans support appropriations cuts in theory, but not in practice. At the end of the day, they will get behind a deal which allows for modest spending hikes in domestic accounts if it also leads to some defense increases too. That deal will not be popular with some activist House Democrats, but many others in the party will be relieved they aren’t getting blamed for overreaching on spending.

Of course, none of this will make much difference to the overall fiscal outlook, which continues to deteriorate and about which neither party has much to offer at this point. President Trump has made it clear he isn’t interested in reforming entitlement programs, which is the primary source of fiscal pressure. And the Democratic candidates running for president in 2020 are proposing large increases in spending and taxes but nothing by way of deficit reduction.

This bipartisan consensus to ignore the nation’s budgetary challenges probably won’t change until outside events force a different response. When that moment arrives, it’s pretty clear the political parties will need each other because, as this year’s smallish cap fight indicates, neither party is united and strong enough to act on its own.

James C. Capretta is a RealClearPolicy Contributor and a resident fellow at the American Enterprise Institute.

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