Pelosi Says No Debt Ceiling Hike Without a Spending Deal

Plus, a controversial move by the USDA

Pelosi Says No Debt Ceiling Hike Before a Spending Caps Deal

House Speaker Nancy Pelosi said Thursday that any deal to raise the debt ceiling will have to come as part of, or after, an agreement to raise spending caps and avoid automatic budget cuts set to take effect for fiscal year 2020.

“When we lift the caps, then we can talk about lifting the debt ceiling,” Pelosi said. “But that would have to come second or simultaneous, but not before, lifting the caps."

Treasury Secretary Steven Mnuchin, who is leading the budget talks for the Trump administration, has pressed for lawmakers to raise the borrowing limit quickly. The Treasury is using accounting maneuvers to avoid breaching the debt ceiling, and lawmakers must act to increase or suspend the limit and avoid a potential U.S. default. On Wednesday, Mnuchin also said that the debt ceiling and spending caps must be packaged together. “If we reach a caps deal, the debt ceiling has to be included,” he said, according to the Associated Press.

Without an agreement on spending levels, automatic cuts set in place by a 2011 law would reduce defense and non-defense budgets by $126 billion for the fiscal year starting in October.

Pelosi also told reporters that she believes Congress can reach an agreement on the $4.5 billion in additional funding requested by the Trump administration to address the needs of migrants at the southern border.

USDA Says It Will Save $20M a Year by Moving Agencies to Kansas City. Critics Say It’s All Politics.

The U.S. Department of Agriculture announced Thursday that it will relocate two scientific agencies, the Economic Research Service and National Institute of Food and Agriculture, from Washington, D.C., to the Kansas City region, despite objections to the plan from some employees of the agencies as well as Democratic lawmakers and former USDA leaders.

Agriculture Secretary Sonny Perdue has framed the move as a cost-saving measure that will bring the agencies closer to their “stakeholders” in farming regions and to a strong agricultural labor pool. The department says it will save some $300 million over 15 years on employment and rent.

But critics charge that the relocation is politically motivated, and have warned that it will hurt the agencies and threaten their scientific work. “This is not just a change of address,” Jack Payne, University of Florida’s senior vice president for agriculture, told The Washington Post. “It cuts NIFA off from the collaboration with other federal funding agencies in D.C. that are its major partners.” Former USDA chief scientists under Presidents George W. Bush and Barack Obama have said the relocation would set ERS back “five to 10 years.”

Employees at the agencies unionized ahead of the announcement, and union officials as well as some Democrats have pledged to fight the move.

Quote of the Day

“They’re wrong.”

– Larry Kudlow, director of the National Economic Council, when asked Thursday why he remains optimistic about economic growth continuing at a pace of roughly 3% a year while other blue-chip forecasters expect significantly slower expansion of about 2% a year. Kudlow went on to cite the Trump administration’s policies on tax cuts, deregulation and trade — particularly the new trade deal with Mexico and Canada that must still be ratified by Congress — as creating incentives for businesses to invest.

More Kudlow: “I think there’s some evidence that the corporate tax cut has already paid for itself. … I wouldn’t say the overall tax cut has paid for itself. I wouldn’t go that far. … I need a little time here. I just need another couple of years … to let the revenues fill in if we get the kind of growth that we are hoping for.”

Number of the Day: 4:01

The House was in session until 4:01 a.m. Thursday debating amendments to the first 2020 spending package. They were at it again starting at 9 a.m.

How Washington Stopped Worrying About the Debt

A major attitude shift has washed over Washington, The Wall Street Journal’s Kate Davidson and Jon Hilsenrath wrote Thursday: “Political support for taming federal debt has melted away.”

Not so long ago, there was widespread agreement in both parties that the debt was a problem that needed to be solved. That consensus has all but disappeared in recent years, with Republicans voting for deficit-boosting tax cuts and Democrats pushing large, expensive social programs such as Medicare for All, with little regard for the long-term costs.

One reason for the shift, Davidson and Hilsenrath said, is that reality has failed to match the dire predictions of the deficit hawks, who warned of economic calamity from soaring debt. Interest rates, which were expected to rise as the U.S. Treasury flooded the markets with new debt, have fallen, and investors are now more concerned about a glut of capital than a shortage of it (see the chart below). On top of that, the economy has remained strong despite the growing deficits, which will soon reach $1 trillion a year.

The lack of a clear connection between growing deficits and economic performance has prompted some economists to rethink these fiscal issues. Olivier Blanchard, the former chief economist at the IMF, said earlier this year that in his view, debt is not necessarily a problem, and in some situations can be deployed with little or no cost. “If you have good uses for it, use it,” Blanchard said.

The public, too, seems to be less interested in the issue than it was in the past. House Budget Committee chairman John Yarmuth (D-KY) told the Journal that his constituents seem to think, “There haven’t been any cataclysmic consequences, so why worry about it?”

One deficit hawk who’s sticking to his guns, Bill Hoagland of the Bipartisan Policy Center, told the Journal that the general lack of interest in the debt has made him think about “going back to the farm and forgetting all about it,” adding, “It’s almost like I’ve wasted my, whatever it’s been, 45 years in this town.”

Still, some economists warn that the soaring U.S. debt could impose high costs somewhere down the line, even if they don’t seem to be causing much harm now. According to the Journal, Moody’s estimates that interest payments will claim more than 20% of federal revenue within 10 years — a bigger bite than the U.S. saw even in the 1980s and 1990s, when the deficit became a central concern in Washington.

Tweet of the Day

From billionaire activist and philanthropist John Arnold:

-->

Goodbye, Sarah Sanders — and maybe Kellyanne Conway, too?

Send your tips and feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes.And please tell your friends they can sign up here to get their own copy of this newsletter.

-->

News

Views and Analysis