Behind The Budget Deal

Posted: Feb. 11, 2018, 9:51 a.m. by

Budget Deal

The hourslong second government shutdown of the new year ended early Friday morning thanks to a coalition of moderate House Republicans and Democrats who combined to resolve a fiscal fight that has kept Congress from doing the one thing it is tasked with doing – passing a budget.

President Trump signed the two-year budget deal at 8:30 a.m. Friday ensuring something Washington hasn’t seen in a while – stable government funding. On the Senate Floor Senate Minority Leader Chuck Schumer (D-N.Y.) said that the deal “is a strong signal that we can break the gridlock that has overwhelmed this body and work together for the good of the country.” Few observers are so optimistic, especially when it comes to immigration reform.


What’s In The Deal

The two-year budget deal increases military spending by $80 billion in this fiscal year and $85 billion in fiscal year 2019. There is also a provision for a two-year $140 billion emergency war fund. Domestic spending will increase by $63 billion this fiscal year and $68 billion the following year. Among specific needs targeted, the opioid epidemic and mental-health issues will get $6 billion. Veterans’ hospitals and clinics and the National Institutes of Health research will receive an additional $6 billion.

Another $4 billion will go to help make college more affordable. An additional $20 billion will help fund infrastructure improvements including rural broadband, roads and highways, and drinking water. In addition, the Children’s Health Insurance Program (CHIP) will be reauthorized for 10 years.

Debt Ceiling And Disaster Relief

The budget deal suspends the debt ceiling through March 1, 2019, and directs almost $90 billion to help states affected by hurricanes and wildfires last year. This includes $23.5 billion for the Federal Emergency Management Agency’s disaster-relief fund for recovery, repairs and future mitigation of disasters.

Disaster aid also includes $28 billion in community development block grants for housing and infrastructure repairs. Of that amount, $2 billion is specifically for Puerto Rico and the U.S. Virgin Islands’ electrical grids.


Higher Interest Rates Coming

The combination of recent tax cuts and the new budget will force the U.S. to borrow more than $1 trillion this year, something that could worsen the global sell-off in stock markets. Mark Zandi, chief economist of Moody’s Analytics Inc. says these moves are “exactly the opposite of what the economic textbooks say lawmakers should be doing.” According to Zandi, “deficit financed tax cuts and spending increases in a full-employment economy will result in more Fed tightening and higher interest rates.”

In the short term, tax cuts plus more government spending should help fuel the economy. Some estimates are that the spending deal along could add as much as 0.4 percent to economic growth this year and 0.2 percent next year resulting in growth of 3.1% in 2018 and 2.3% in 2019.