Negotiations on Debt Ceiling and Budget Caps Continue

Treasury Secretary Steven Mnuchin said Thursday morning that an agreement was reached between the administration and House Speaker Nancy Pelosi (D-CA) on spending levels for FY20 and FY21 as well as a two-year extension of the debt ceiling. Rep. Tom Cole (R-OK) said that the FY20 cap for defense spending would be somewhere between $733B and $750B. 

While both sides agree that there should be offsets for the spending cap increases, they are still discussing the specifics of those offsets. The last bipartisan budget deal included $38B in offsets for $296B in budget cap increases. Last night the Treasury Department sent a “menu” of $574B in spending cuts as well as $516B in savings that can be achieved by freezing spending levels in FY21-FY23. Democrats responded that the $1.1T offered by the White House are nonstarters. The administration wants at least $150B in offsets. This is the most significant final hurdle they need to clear before reaching a deal.

Secretary Mnuchin followed up stating that if they don’t get an agreement done in time, he is advocating for a separate debt ceiling increase. Speaker Pelosi didn’t comment on the Secretary’s statement that an agreement had been reached. The Speaker does want to pass an agreement on the House floor by next Thursday. House Minority Leader Kevin McCarthy (R-CA) said a final agreement wasn’t locked down yet, but that there was broad agreement on the debt ceiling timeframe. 

What’s also at play is other potential legislative riders that would be attached to the must-pass agreement such as expired tax provisions, whether the $22B needed for the Veterans Choice Program should count against the cap on nondefense spending, a retirement savings bill (H.R. 1994), and a tax technical corrections bill.Speaker Pelosi had said that she would need a deal by the end of this week in order to put it on the House floor next week. The House is scheduled to adjourn for the August recess next Friday. Both sides are continuing negotiations this weekend, but an additional week of work for the House is looking more likely.

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