Congress agrees $1.4 trillion budget to avoid second damaging government shutdown

Deal amounts to against-the-odds victory for Washington pragmatists

Donald Trump and congressional leaders have announced they had struck a critical debt and budget agreement. The deal amounts to an against-the-odds victory for Washington pragmatists seeking to avoid politically dangerous tumult over the possibility of a government shutdown or first-ever federal default.

The deal, announced by Mr Trump on Twitter and in a statement by Democratic House speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer, will restore the government's ability to borrow to pay its bills past next year's elections and build upon recent large budget gains for both the Pentagon and domestic agencies.

“I am pleased to announce that a deal has been struck,” Mr Trump tweeted, saying there will be no “poison pills” added to follow-up legislation. “This was a real compromise in order to give another big victory to our Great Military and Vets!”

Ms Pelosi and Mr Schumer said the deal “will enhance our national security and invest in middle class priorities that advance the health, financial security and well-being of the American people”.

They claimed credit for winning more than $100bn worth of spending increases for domestic priorities since Mr Trump took office.

The agreement is on a broad outline for $1.37 trillion in agency spending next year and slightly more in fiscal year 2021. It would mean a win for politicians eager to return Washington to a more predictable path amid political turmoil and polarisation, defence hawks determined to cement big military increases and Democrats seeking to protect domestic programmes.

Nobody can claim a big win — though they did — but both sides view it as better than a protracted battle this fall that probably wouldn't end up much differently.

However, it also comes as budget deficits are rising to $1 trillion levels — requiring the government to borrow a quarter for every dollar the government spends — despite the thriving economy and three rounds of annual Trump budget proposals promising to crack down on the domestic programmes that Ms Pelosi is successfully defending now. It ignores warnings from deficit and debt scolds who say the nation's fiscal future is unsustainable and will eventually drag down the economy.

“This agreement is a total abdication of fiscal responsibility by Congress and the president,” said Maya MacGuineas, president of the committee for a responsible federal budget, a Washington advocacy group. “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.”

The aides who spoke Monday about the emerging deal did so on the condition of anonymity because they were not authorised to speak on the record before a deal was final.

A push by the White House and House GOP forces for new offsetting spending cuts was largely jettisoned, though Ms Pelosi gave assurances about not seeking to use the follow-up spending bills as vehicles for aggressively liberal policy initiatives.

Fights over Mr Trump's US-Mexico border wall, other immigration-related issues and spending priorities will be rejoined on follow-up spending bills that are likely to produce much the same result as current law. The House has passed most of its bills, using far higher levels for domestic spending. Senate measures will follow this fall, with levels reflecting the accord.

At issue are two separate but pressing items on Washington's must-do agenda: increasing the debt limit to avert a first-ever default on US payments and acting to set overall spending limits and prevent automatic spending cuts from hitting the Pentagon and domestic agencies in January.

The threat of the automatic cuts represents the last gasp of a failed 2011 budget and debt pact between former President Barack Obama and then-speaker John Boehner, that promised future spending and deficit cuts to cover a $2 trillion increase in the debt. But a bipartisan deficit “supercommittee” failed to deliver, and lawmakers were unwilling to live with the follow-up cuts to defence and domestic accounts. This is the fourth deal since 2013 to reverse those cuts.

Prospects for an agreement, a months-long priority of top Senate Republican Mitch McConnell, became far brighter when Ms Pelosi returned to Washington this month and aggressively pursued the pact with treasury secretary Steven Mnuchin, who was anointed lead negotiator instead of more conservative options like acting White House chief of staff Mick Mulvaney or hardline budget director Russell Vought.

Mr Mnuchin was eager to avert a crisis over the government's debt limit. There's some risk of a first-ever US default in September, and that has added urgency to the negotiations.

The pact would defuse the debt limit issue for two years, meaning that Mr Trump or his Democratic successor would not have to confront the politically difficult issue until well into 2021.

Details on spending levels have been kept under wraps so far, but the complicated accounting under Washington's arcane budget rules gives each side a way to paint the numbers favourably. Generally speaking, the deal would lock in place big increases won by both sides in a 2018 pact driven by the demands of GOP defence hawks and award future increases consistent with low inflation.

Ms Pelosi was positioned to claim rough parity between increases for defence and non-defence programmes, but the veteran negotiator retreated on her push for a special carve-out for a newly reauthorised programme for veterans utilising private sector health care providers.

In the end, domestic programmes would on average receive four per cent increases in the first year of the pact, with much of those gains eaten up by veterans increases and an unavoidable surge for the US census. Defence would jump to $738bn next year, a 3 per cent hike.

Mr Trump retains flexibility to transfer money between accounts, which raises the possibility of attempted transfers for building border barriers.

The results are likely to displease many on both sides, especially Washington's weakening deficit hawks and liberals demanding greater spending for progressive priorities. But Ms Pelosi and Mr McConnell have longtime histories with the Capitol's appropriations process and have forged a powerful alliance to deliver prior spending and debt deals.

The measure would first advance through the House this week and win the Senate's endorsement next week before Congress takes its annual August recess.

Associated Press