White House, Congress inch toward debt, budget deal

Lawmakers and key administration officials say they are getting close to a budget deal that will allow them to avoid defaulting on the debt as they barrel toward a break at the end of the month.

Congress has a matter of days before it’s scheduled to leave for the August recess, raising the stakes for negotiators to clinch an agreement quickly.

The optimism comes as Speaker Nancy PelosiNancy PelosiMoulton drops out of presidential race after struggling to gain traction Conservatives push Trump tariff relief over payroll tax cuts Democrats press FBI, DHS on response to white supremacist violence MORE (D-Calif.) and Treasury Secretary Steven MnuchinSteven Terner MnuchinThe Hill's Morning Report: How will Trump be received at G-7? White House won't move forward with billions in foreign aid cuts Trump says he'll decide on foreign aid cuts within a week MORE, viewed as the two key players in the talks, have engaged in a series of phone calls over the past week and were expected to speak again Tuesday.

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“They seem to me to be moving closer and closer together,” said Senate Appropriations Committee Chairman Richard ShelbyRichard Craig ShelbyIs this any way for NASA to build a lunar lander? In-space refueling vs heavy lift? NASA and SpaceX choose both Budget deal sparks scramble to prevent shutdown MORE (R-Ala.).

The progress marks a U-turn from earlier this month, when discussions between Democrats and the White House derailed.

Sen. Shelley Moore CapitoShelley Wellons Moore CapitoAmerica is in desperate need of infrastructure investment: Senate highway bill a step in the right direction On The Money: Economy adds 164K jobs in July | Trump signs two-year budget deal, but border showdown looms | US, EU strike deal on beef exports Trump border fight throws curveball into shutdown prospects MORE (R-W.Va.), a member of leadership and the Appropriations Committee, said there was “cautious optimism” about a deal, while Senate Minority Leader Charles SchumerCharles (Chuck) Ellis SchumerJewish Democratic congresswoman and veteran blasts Trump's 'disloyalty' comments Schumer says Trump encouraging anti-Semites Saagar Enjeti: Biden's latest blunder; Krystal Ball: Did Schumer blow our chance to beat McConnell? MORE (D-N.Y.) characterized the negotiations as “going quite well right now.”

Helping drive the new burst of momentum is the looming deadline for needing to raise the country’s debt ceiling and avoid a default, which would have catastrophic consequences for the world’s financial markets. The Treasury Department has been using “extraordinary measures” since March to extend the nation’s borrowing limit.

Lawmakers had thought they had until late September or potentially October to raise the debt ceiling. But Mnuchin, in a letter last week to congressional leadership, said the deadline could hit in early September and formally requested that Congress act before they leave for the August recess.

The new debt ceiling deadline also moves up the time frame for getting a deal to raise the defense and nondefense spending caps and avoid deep across-the-board cuts known as sequestration. That pressure has helped push talks forward.

“I know, at least on our side, there’s some optimism we might get there, probably,” said Republican appropriator Rep. Tom ColeThomas (Tom) Jeffrey ColeTo fix retirement, we need to understand it On The Money: Trump banks on Fed, China to fuel 2020 economy | Judge orders parties to try to reach deal in lawsuit over Trump tax returns | Warren targets corporate power with plan to overhaul trade policy Lawmakers point to entitlements when asked about deficits MORE (Okla.). “That’s more because of the debt concern. I think both sides legitimately know we can’t afford to have a default.”

A Democratic aide added that they thought a deal could be reached, “maybe as soon as this week.”

Though sequestration-related cuts wouldn’t kick in until January, both Pelosi and Senate Majority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellDemocrats press FBI, DHS on response to white supremacist violence The Hill's 12:30 Report: Democratic field narrows with Inslee exit McConnell rejects Democrats' 'radical movement' to abolish filibuster MORE (R-Ky.) have made it known they view a stand-alone debt ceiling hike as a political non-starter.

“Now is the time to close the deal. ...They haven’t closed it yet, but they haven’t gotten much more time,” Shelby added.

Several key sticking points remain in the negotiations, including hammering out a deal on defense and nondefense spending levels, the administration’s demand for some of the spending increases to be paid for and how to include roughly $22 billion in spending for veterans’ health care.

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The fight over the veterans’ funding had emerged as the most high-profile hurdle. Pelosi, in a recent letter to Mnuchin, publicly laid out her demands, including $9 billion in additional funds in fiscal 2020 and $13 billion in additional funds in fiscal 2021 for the VA Mission Act, which overhauled how the Department of Veterans Affairs (VA)  handles health care.

Republicans wanted to pay for the VA Mission Act under the budget caps, but Democrats worried that would force them to make $9 billion of cuts to other programs in 2019 and another $13 billion in 2020. Instead, they want to ensure those payments don’t count toward the caps.

But the sides have shown flexibility on the matter, raising the prospect that they can “split the difference” for a final deal.

“There’s probably a way to get a deal done,” Shelby said when asked about the VA provisions.

Asked if he would support not counting the health care spending toward the budget caps, he added, “If it would make the process work, yes.”

Pelosi told reporters Tuesday that at least some portion of the veteran funding should not count toward the cap, a softening from her Saturday letter that insisted on adjusting caps for the full levels of funding.

At the heart of Pelosi and Mnuchin’s talks are what the overall spending caps will be on defense spending, a top priority for Republicans and the White House, and nondefense spending, viewed as a top priority for Democrats. Sen. David Perdue (R-Ga.) described lawmakers as being roughly $10 billion apart on a top-line figure for defense spending and roughly $30 billion apart on a top-line for nondefense spending.

“The question is how much ransom we’re going to have to pay for the defense number,” said Sen. John CornynJohn CornynThe Hill's Morning Report - Trump hews to NRA on guns and eyes lower taxes The Hill's Morning Report - Trump on defense over economic jitters Democrats keen to take on Cornyn despite formidable challenges MORE (R-Texas), an adviser to McConnell. “We’re going to hit a trillion-dollar deficit this year and we keep spending like drunken sailors.” 

House Democrats have marked up spending bills for an overall level of $733 billion in defense spending and $639 billion in nondefense spending, a category that covers everything from health and education to science research and foreign operations. Trump and Republicans want to increase defense spending to $750 billion.

For Democrats, a key principle in the negotiations will be keeping “parity” between the increases to defense and nondefense spending, though they’ve shifted in how they’ve defined equality on funding increases.

“It’s always been a somewhat flexible definition,” a House Democratic aide noted.

Meanwhile, Mnuchin is emphasizing that he wants to offset, or pay for, the spending increases, saying “there’s typically offsets that have been negotiated as part of these deals.”

If Pelosi and Mnuchin aren’t able to quickly put together a caps and debt-limit deal, they would need to come together with a backup plan for raising the debt ceiling.

Mnuchin said a combined budget and debt deal was his first choice, but that in the absence of a timely deal, he expected Congress to cancel part of their August recess in order to deal with the debt ceiling.

“If for whatever reason we can’t agree on all these issues before they leave, I would either expect them to stick around or raise the debt ceiling,” he said.

House Minority Leader Kevin McCarthyKevin Owen McCarthyOmar says US should reconsider aid to Israel I'm not a Nazi, I'm just a dude: What it's like to be the other Steve King Trump finds consistent foil in 'Squad' MORE (R-Calif.) floated a short-term agreement as a plan B that would give the White House and Democrats more time to keep talking, while stressing that he was optimistic that they would be able to get a deal before the August recess.

“If we are as close as I believe we are, and we need a day or two longer, that we should stay here and get this done. ... And I would say if we can’t get this done, we should do a 30 day [extension],” he said. “[But] I’d rather get a cap agreement and a debt ceiling agreement before we leave in July, and I think we are very close to making that happen.”

House Majority Leader Steny HoyerSteny Hamilton HoyerOmar says US should reconsider aid to Israel Liberal Democrat eyes aid cuts to Israel after Omar, Tlaib denied entry Lawmakers blast Trump as Israel bars door to Tlaib and Omar MORE (D-Md.) deferred questions about the details of the talks to Pelosi but said Democrats are opposed to a short-term debt ceiling and spending extension.

“There was some talk about short-term; we’re opposed to short-term. We don’t want to go through this again, we don’t want to put the country through this apprehension again,” Hoyer said. “So, we think it needs to be at least a two-year extension. And we want a two-year caps deal, so we’re not continually going down this crisis road.”

Mike Lillis contributed.