Congressional leaders forge budget deal that adds to deficit

[February 08, 2018]  By Richard Cowan and Amanda Becker

WASHINGTON (Reuters) - U.S. Senate leaders, in a rare bipartisan compromise, reached a deal on Wednesday to raise spending on military and domestic programs by almost $300 billion over the next two years, but the agreement infuriated some fiscal conservatives.

The Senate deal, if approved, would allow for $165 billion in extra defense spending and $131 billion more for non-military programs, including health, infrastructure, disaster relief and efforts to tackle an opioid crisis in the country.

It would stave off a government shutdown ahead of a Thursday night deadline for a new short-term spending bill, and also extend the federal government's debt ceiling until March 2019, putting off for more than a year the risk of a debt default.

The agreement was announced by the Republican and Democratic leaders of the Senate and backed by President Donald Trump and House of Representatives Speaker Paul Ryan.

But some conservative House Republicans and outside groups complained it would lead to a $1 trillion fiscal deficit in 2019 and beyond.

"We support funding our troops, but growing the size of government by 13 percent is not what the voters sent us here to do," the conservative House Freedom Caucus said late on Wednesday.

The proposal will likely require the support of some Democrats if it is to pass the House. Some liberal Democrats opposed it because it does not include an agreement to protect from deportation hundreds of thousands of "Dreamers," young people brought illegally to the United States as children.

In voicing her opposition, House Democratic leader Nancy Pelosi set the record for the longest continuous speech in House history, an eight-hour effort that included reading letters from Dreamers pleading to be allowed to stay in the United States.

Pelosi said she would not back the proposed deal unless Ryan committed to allow a vote on protecting Dreamers. But she did not appear to be pushing other Democrats to back her, saying: "Members will do what they’ll do."

The Senate and the House were both expected to vote on the proposed deal on Thursday. If approved, the bill would then go to Trump to be signed into law.

Trump campaigned for the presidency on a promise to boost military spending and he gave his support to the budget deal in a tweet on Wednesday night.

"Republicans and Democrats must support our troops and support this bill!" the Republican president said.

Along with tax cuts backed by Trump and pushed through Congress by Republicans, the spending deal would add to the fiscal deficit, which hit $666 billion in the 2017 fiscal year. A private Washington budget watchdog group projected the deficit was on track to exceed $1 trillion in 2019.

"This really is the moment where it has become clear that despite record levels of debt and approaching trillion dollar deficits, Congress has stopped caring about what they're doing to the fiscal health of the country," said Maya MacGuineas, head of the Committee for a Responsible Federal Budget, a group that advocates for long-term fixes to Washington's debt problems.

U.S. House Minority Leader Nancy Pelosi (D-CA) is shown reading from a bible during a marathon speech on the floor of the House of Representatives in this still grab taken from video on Capitol Hill in Washington, U.S., February 7, 2018. U.S. House TV/Handout via Reuters

SPENDING CRISIS

Republican and Democratic rivals in the Senate earlier declared a breakthrough after months of bickering over spending priorities.

"This bill is the product of extensive negotiations among congressional leaders and the White House," Senate Majority Leader Mitch McConnell, a Republican, said on the Senate floor.

His Democratic counterpart, Chuck Schumer, said the deal "should break the long cycle of spending crises that have snarled this Congress and hampered our middle class."

The deal, if approved, would also fund the federal government until March 23, averting a second shutdown this year and giving lawmakers six weeks to resolve their differences over immigration policy and write the full-year budget.

It would also extend the debt ceiling for another year, reducing fears of an unprecedented U.S. debt default.

In financial markets, yields on benchmark 10-year notes <US10YT=RR> rose on news of the budget deal, on expectations of higher growth and potentially greater Treasury supply.

A large uptick in bond issuance is expected after Congress raises the debt ceiling, which along with higher inflation expectations has weighed on bonds in the past week.

The government was shut down for three days last month after Democrats sought to have a spending bill include protections for the Dreamers.

Trump has said he is open to a deal for the Dreamers but only if he is able to build a wall on the U.S.-Mexico border - a main promise of his presidential campaign - and tighten up immigration policy.

Trump threatened on Tuesday to upend budget talks, saying he would welcome a government shutdown if Congress were not able to agree to changes in immigration law that he said would prevent criminals from entering the country.

(Additional reporting by David Morgan, Susan Heavey and Doina Chiacu in Washington and April Joyner in New York; Writing by Alistair Bell; Editing by Will Dunham and Peter Cooney)

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