Conservative Republicans bash budget deal
Conservative Republican lawmakers rebuked the Trump administration for making a two-year budget deal with congressional Democrats that would raise spending and lift the US borrowing limit — a rare backlash against the White House for pursuing lax fiscal policies.
The agreement reached on Monday afternoon would remove the threat of a dangerous debt default from the US economic outlook, but US fiscal hawks were quick to criticise it as the latest sign of the loss of fiscal discipline in Washington.
While many Republican lawmakers backed the large tax cuts enacted by Donald Trump in 2017, fuelling the growth of US budget deficits, some appeared to rediscover their fiscally conservative roots as they announced their opposition to the debt ceiling agreement on Tuesday.
“Three years ago, the American people voted to move away from the big-government spending of the Obama era. We should work to restore fiscal sanity, rather than perpetuating Democrats’ big government programmes,” said Ted Cruz, the Texas Republican senator. “I urge administration negotiators to go back to the bargaining table and fight for the president’s priorities,” he said.
The unrest among conservative Republicans was most apparent within the staunchly rightwing “Freedom Caucus” of the House of Representatives. Mark Meadows and Jim Jordan, the group’s leaders, told Politico they would oppose the deal and convened a meeting on Tuesday night to decide if the group needed to take an “official position” against it.
The main criticism of the agreement from Mr Trump’s own camp is that it raises spending levels by $320bn over the next two years, with limited offsetting spending reductions spread over a longer period, at a time when the annual US budget deficit is already nearly $900bn, more than 4 per cent of gross domestic product.
The Republican leadership in Congress is still supporting the deal, even if halfheartedly, making the conservative rebellion unlikely to scupper its approval on Capitol Hill in the coming days.
“I’ll make no apologies for this budget deal. I think it’s the best we could have done at a time of divided government. The alternatives were much worse,” Mitch McConnell, the Republican majority leader in the Senate, said on Tuesday.
Meanwhile, Nancy Pelosi, the Democratic House speaker, who negotiated the deal with Steven Mnuchin, the Treasury secretary, urged her rank-and-file members to support it as a boon to “middle class priorities that advance the health, financial security and wellbeing of the American people and enhance our national security”. There were few signs of Democratic opposition to the agreement.
The president himself remains somewhat of a wild card given his unpredictability — and a broader backlash from Republicans in Congress, or the conservative base, might lead him to have second thoughts.
“Lou Dobbs and Sean Hannity are more influential to Trump than Mike Meadows and Jim Jordan,” said Chris Krueger, an analyst at Cowen Washington Research Group, of the TV anchors close to the president. “As long as the Fox News crowd doesn’t go berserk on this, my suspicion is that Trump will sign on,” he said.
Part of the White House’s rationale in reaching the deal is that would help remove one element of uncertainty from markets heading into Mr Trump’s re-election fight, at a time when other risks to the economic outlook, including from trade tensions, are expected to persist.
There is also little evidence that bond investors are worried about America’s fiscal position. Following the announcement of the deal, yields on short-term Treasury bills fell before quickly rebounding. Ten-year Treasuries saw little movement as well, with yields only modestly higher than at the start of the week, at 2.08 per cent.
The muted reaction stood in sharp contrast to the market ructions that accompanied debt-ceiling negotiations eight years ago, when lawmakers waited until the eleventh-hour to strike a deal to avoid a debt default. That showdown led to a downgrade of the US government’s credit rating.
“We’re in this situation where the debt seems to be exploding and there’s a big deficit at a time when the economy is doing just as well as it could, and markets seem completely unperturbed,” said Paul Ashworth, the chief North American economist at Capital Economics.
The White House has embraced the market’s nonchalance. When asked about the US government’s debt load of $22tn earlier this month, Larry Kudlow, the director of the National Economic Council, said: “I don’t see this as a huge problem at all right now. [It’s] quite manageable.”
One source of comfort for Mr Trump was that even as they criticised the budget deal, powerful conservative groups outside Congress including Americans for Prosperity and the Club for Growth were reluctant to attack the president directly, suggesting Congress and other members of the administration were responsible for the fiscal drift instead.
“We . . . hope President Trump gives Secretary Mnuchin a copy of The Art of the Deal so that he will not be as weak and give in to liberal demands in future negotiations,” said David McIntosh, the president of the Club for Growth.