Congress, White House near deal on spending, debt limit

Congressional leaders and senior White House officials are on a path to reach a deal to increase spending caps over the next two years and raise the debt ceiling beyond the 2020 election.

The spending talks, which earlier this month seemed hopelessly stalled, have new momentum after Senate Majority Leader Mitch McConnell (R-Ky.) and Senate Appropriations Committee Chairman Richard Shelby (R-Ala.) made personal appeals to President Trump in recent days.

"I had a really good session with the president, just the two of us, about a week ago about the options available to us when it comes to government spending over the next two years," McConnell told reporters on Tuesday.

"A negotiated agreement with the House Democrats is the best of three alternatives, the other two being arguing back and forth over the length of a [continuing resolution] for God only knows how long, or a sequester that hits defense with about a $71 billion cut at the end of the year," he added.

Shelby said he delivered a similar message to Trump during a meeting Monday afternoon.

Acting White House budget director Russ Vought had signaled to congressional negotiators in April that the president would be willing to accept a yearlong stopgap measure in the absence of a spending deal. More recently, White House officials mulled a one-year deal instead of a two-year agreement.

"I've been to a lot of these meetings over the years - and I don't want to be too forward-leaning in predicting an agreement, but it seems to me without exception everyone would like to [make one]," McConnell said Tuesday.

"The agreement would be a two-year caps deal, which would allow us to go forward" with the appropriations process, he added.

McConnell's optimism even surprised his Republican colleagues when he briefed them on the status of the talks during a closed-door lunch meeting.

"His normal way of operating is not to be overly optimistic, and he struck an optimistic tone," said Sen. Shelley Moore Capito (R-W.Va.), a member of the Appropriations Committee.

Congress's top four leaders - Speaker Nancy Pelosi (D-Calif.), McConnell, Senate Democratic Leader Charles Schumer (N.Y.) and House Minority Leader Kevin McCarthy (R-Calif.) - met with Treasury Secretary Steven Mnuchin, acting White House chief of staff Mick Mulvaney and Vought in Pelosi's office Tuesday.

After meeting for more than two hours in the morning, they reconvened at 4:15 p.m.

McConnell had told reporters at lunchtime that negotiators hoped to clinch a deal by the end of the day, but the afternoon meeting broke up without a final agreement.

One potential sticking point is a disagreement over how much to increase funding levels for defense programs compared to nondefense domestic programs.

"There are still some significant issues outstanding, particularly the domestic-side spending issues - things like health care, infrastructure and things that average middle-class folks need," Schumer said Tuesday afternoon.

Democrats later described the meetings in less optimistic terms than McConnell. They praised it as a good start but said there's still a lot of work left to do.

"When President Trump shut down the government and our Republican friends went along with that, it didn't serve them very well. So I think that's what's pushing them to a serious negotiation," Schumer said.

GOP leaders in Congress see the chief benefit of a two-year deal as taking the prospect of another government shutdown off the table.

Sen. Lindsey Graham (R-S.C.) said removing the shutdown threat is "really big," and that the prospect of passing a string of stopgap spending measures in the absence of a longer-term deal would be "devastating to the military."

Sen. Joni Ernst (R-Iowa) said she had concerns about adding to the federal deficit but warned "the only other recourse is then continuing resolutions, which kill us all, and possible government shutdowns, which we don't want to do."

Fiscal hawks criticized the emerging deal as something that would further swell annual deficits.

"Any deal to increase spending caps without offsets should be a non-starter," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. "Extending last year's budget-busting cap increases could add more than $2 trillion in debt over the next decade at a time when debt is already projected to rise to historic highs."

A spending deal also would solve the politically uncomfortable problem of the federal government running out of borrowing authority later this year.

The Treasury Department has been using "extraordinary measures" to extend federal borrowing authority since the government hit its debt limit in early March.

The deadline for addressing the debt ceiling is projected to fall in September or October. Analysts say that if the debt ceiling is not addressed by October, the government will default on its debt, a circumstance that would likely spark chaos in financial markets.

McConnell and Schumer both said Tuesday that raising the debt limit would be part of the spending deal.

The White House in April floated the idea of moving quickly on a debt-limit increase, even in the absence of a spending-caps deal, but now has signaled willingness to bundle the two items.

House Budget Committee Chairman John Yarmuth (D-Ky.), who was briefed on the meeting, said that as far as he knew, nobody was opposed to raising the debt ceiling.

"I know Mnuchin wants it, and we certainly want it," he said, referring to inclusion of a debt-ceiling increase in a spending deal.

Negotiators are likely to settle on a numerical increase, as opposed to the previous practice of suspending the ceiling for a certain period of time, Yarmuth said.

He added that there seemed to be some consensus among negotiators about setting overall defense spending at $733 billion, $17 billion below the administration's request. 

Trump had initially proposed keeping the statutory 2020 spending caps in place, which would have led to a roughly 12 percent cut in discretionary spending. 

But the president also proposed indirectly increasing defense spending by adding billions to a defense account that is not constrained by budget caps, bringing the defense total to $750 billion while slashing nondefense to $567 billion.

House Democrats set their own funding numbers for their spending bills - $733 billion for defense, $664 billion of which would be set under the statutory cap - and $639 billion for nondefense, with $631 billion of that amount falling under the cap.

Jordain Carney contributed.