The Emerging 'Caps' Deal Shows Trump Spending Cuts Are Illusory

The Emerging 'Caps' Deal Shows Trump Spending Cuts Are Illusory

Recent press reports, written before the president got into his latest dust-up with House Speaker Nancy Pelosi, indicate the bipartisan congressional leadership is close to reaching another short-term budget deal with the administration. Assuming the current political storm eventually passes or at least dies down sufficiently to allow for a minimum of pragmatic governance, compromise legislation to raise appropriated spending for defense and non-defense accounts will become all but inevitable. Once finalized, this deal would confirm that more than $1 trillion of deficit reduction claimed in the Trump budget is illusory.

Two months ago a Trump administration official was telling Congress that the president was not interested in striking another deal to raise the spending caps. Fiscal conservatives were incensed by the previous Trump-era bipartisan deal, reached in February 2018, because it increased spending on defense and domestic appropriations by a combined $300 billion over two years, and created pressure to sustain the added spending beyond 2019. When the president signed the first massive appropriations bill that the 2018 deal set in motion, he promised never to be pushed into accepting such terms again.

His 2020 budget seemed to keep faith with that commitment. For domestic appropriations, the administration’s budget proposed to reduce spending from $614 billion in 2019 to $567 billion in 2020 in order to stay within the cap originally negotiated by President Obama with then-House Speaker John Boehner and enacted in the 2011 Budget Control Act.

For defense spending, the administration is committed to steady annual increases but did not want to propose raising the defense caps for 2020 and 2021 because doing so would open the door to Democratic demands for similar increases for domestic accounts. In a long-shot attempt to get defense-only relief, the administration parked a substantial increase in funding for the military in the Overseas Contingency Operations (OCO) account, which is exempt from the defense spending cap and is supposed to fund temporary war-fighting costs, not on-going activities. With the OCO workaround (or gimmick), the administration was able to comply with the 2020 defense cap — set at $567 billion, or $47 billion less than the cap in 2019 — while still increasing overall defense spending from $716 billion in 2019 to $750 billion in 2020.

The administration’s plan to increase defense through OCO while squeezing domestic appropriations never stood much of a chance of success because Republicans in Congress were never on board with it. Many GOP House and Senate members support spending cuts in theory but not in practice. They have been maneuvering all year to cut a deal with Democrats similar to the one struck in 2018.

For their part, Democratic leaders also want to strike a bipartisan deal because their caucus is divided over how to proceed. Some members are pushing aggressively for unfinanced domestic spending increases while moderates want entitlement reforms to offset any increase in appropriated accounts. The intra-party impasse is preventing Democratic leaders from passing a partisan cap increase bill in the House.

While the details of the emerging budget deal are not yet known, it is a safe bet that the parties will agree, as they did in 2018, to increase both the defense and non-defense caps, and likely by comparable amounts. The parties may also agree to suspend the debt limit until after the 2020 elections.

If the Trump administration agrees to a second bipartisan deal on the budget that increases appropriation spending by hundreds of billions of dollars relative to current law, that should put to rest for good the idea that the budget can be tamed with cuts in domestic appropriations. This administration had a Republican Congress for two years and secured no significant spending cuts in this part of the federal budget.

Unfortunately, cutting domestic appropriations has been central to the administration’s fiscal plans. By 2029, the budget assumed spending on domestic appropriations (measured in outlays, which differs from budget authority) would fall to just $511 billion, down from $685 billion in 2020. There is no precedent in post-war history for such a steep and lasting reduction in spending for domestic agencies and programs funded in the annual appropriations process. The Congressional Budget Office (CBO) has estimated these cuts would produce $1.0 trillion of the $1.5 trillion in ten-year deficit reduction included in the Trump budget. Consequently, a bipartisan deal to increase the spending caps — and thus implicitly reject the administration’s proposed cuts — would wipe out nearly all of the deficit reduction that the administration has put on the table.

As the 2020 election approaches, Trump administration officials are planning a second-term agenda, and there is talk of trying once again to push through deep appropriations spending cuts after the president has been safely re-elected, in 2021. While it is certainly true that the first year of a new presidential term can open up possibilities for legislative progress, Republicans in Congress are not likely to have such a dramatic change of heart so soon, especially since the president never mentions spending cuts when speaking to voters.

After the 2018 budget deal, the president vowed never to go down that road again, but here he is, a year and half later, on the verge of accepting another big increase in appropriated spending. Failing to secure deep cuts does not mean that all of the administration’s proposed cuts are without merit. Some programs deserve to be eliminated or substantially reduced. But, if cuts are made in some programs, Congress will just spend what is saved on agencies and activities that both Democrats and Republicans believe are underfunded today.

The president campaigned in 2016 on a tax cut, defense spending increases, and protection of entitlement programs. He said he would get deficits under control by cutting waste, by which he apparently meant cutting domestic appropriations. In the third year of his term, it is obvious no such cuts are forthcoming. The result is a deteriorating fiscal outlook and no plan from the president, or his adversaries, to do anything about it.

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

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