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President Trump, Congress Reach 2-Year Budget Deal

STEVE INSKEEP, HOST:

What does a two-year budget deal mean for the federal government's business and the federal debt? Republican and Democratic leaders agreed on a plan last night. Their goal was to bring some stability to Washington until after the 2020 election. The price is a whole lot of spending borrowed money. We begin our coverage with NPR congressional correspondent Susan Davis. Susan, good morning.

SUSAN DAVIS, BYLINE: Good morning, Steve.

INSKEEP: What disasters does this deal avoid?

DAVIS: The main goal with this deal is to head off any debt limit default. The country was coming up against its borrowing limit in early September. So this deal will essentially suspend it until the end of July of 2021. That puts us well past the presidential election, takes it off the table in the election year. It also sets spending limits for the next two years with the goal of heading off any more government shutdowns during that time.

What it doesn't do is include much in spending offsets - only about 77 billion, which is really small when we're talking about these other numbers and especially when you look at the number that is the national debt. It's well over 22 trillion now. In the course of this next debt limit suspension, another 1 1/2 to 2 trillion is expected to be added to that figure.

INSKEEP: I want to explain a bit of terminology there - spending offsets. Used to be, there were rules until very recently that if you added new spending, you would also have to cut some spending somewhere else to keep federal spending down. You're saying, for the most part, they didn't bother with that.

DAVIS: They didn't, and efforts to do these sort of grand bargain budget bills have failed in recent years. You know, there is something in this bill for everybody to hate, which is also why I think there's some confidence that it'll pass (laughter). You know, Republicans don't like that it's going to add to the debt. Democrats don't like that they have to vote for the debt either. But part of the reason we're coming up on the debt limit is because of the 2017 Republican tax cuts. There's just a lot less revenue coming into the government to pay for the country's needs.

There's also a ton more defense spending in here. There's a 3% increase. It's a huge win for the Trump administration. And in order to get that domestic spending that Democrats wanted, they have to agree to vote for more defense spending.

It really is a mixed bag. There's nothing - I don't think anyone's going to be championing support for this bill. But it is supposed to bring some certainty and some calmness to Washington. And I think there - it speaks to the exhaustion of the shutdown politics we've seen in the first couple years of the Trump administration.

INSKEEP: You indicated that Republicans and Democrats alike will have their concerns about the debt. I don't want to quick question anybody's sincerity. And yet, on the evidence of what they're actually doing and they've been doing in the last few years, doesn't the evidence show that they don't actually care about the deficit or the debt anymore?

DAVIS: Well, you know, I always say that the debt - in some ways, I think about it like climate change is an issue. It is real, it's an existential threat, and government just isn't very good about doing anything about it. And I think that applies broadly not just to one party but Washington as a whole. This is an issue that, you know, even under the Obama administration supercommittees, grand bargains, all the things we've tried to do to address the debt - it is just not something that Washington has been able to get its arms around.

INSKEEP: Sue, thanks so much.

DAVIS: You're welcome.

INSKEEP: That's NPR congressional correspondent Susan Davis.

Now Jason Furman is with us next. He is the former chair of the Council of Economic Advisers in the Obama administration and is now a professor at the Harvard Kennedy School of Government. Good morning.

JASON FURMAN: Morning.

INSKEEP: I'm just assuming this isn't exactly the budget you would have written. But is it a good budget?

FURMAN: It's not exactly the budget anyone would have written. I think the spending levels in it are reasonable. There's a very small increase, relative to inflation, in spending next year. It's about constant relative to inflation the year after. But stepping back and looking at it in a big perspective, spending relative to the size of the economy is actually quite low - among the lowest it's been in decades. So this just really prevented a dramatic spending cut but isn't any sort of huge spending increase in the bigger picture.

INSKEEP: OK. So defense spending is at historically high levels. And - well, I mean, it's not exactly peacetime, but we don't have a major war at the moment - really high defense spending; domestic spending is going up somewhat. But you're saying, actually still not not so high.

FURMAN: Well, I like to, like most economists, look at it relative to the share of the economy. And so nondefense spending is about 3% as a share of the economy. Defense spending is a little bit more than that. And that's actually quite low in the grand scheme. If you look at some expenditures the government has, like cost of veterans, cost of health care, cost of education - those actually go up faster than inflation. So this is a budget that's needed really just to keep the government doing about the same as what it's done in the last couple of years. It's not a big expansion in what the government's going to do.

INSKEEP: I'm interested in what it does for infrastructure, which is something that President Trump has talked about, that Democrats have said they could deal with him on. There has been no big infrastructure plan, no new financing mechanism. But of course, the federal government spends on infrastructure all the time. Is there anything here to give hope that highways, bridges, airports will improve in the next few years?

FURMAN: First of all, this deal just sets a top-line number, and then the appropriations committees in the House and Senate need to fill in the details. And...

INSKEEP: OK.

FURMAN: ...That's something they'll do over a longer period of time. But second of all, most of infrastructure spending takes place in a separate vehicle, what's sometimes called the Highway Bill.

INSKEEP: Right.

FURMAN: There had been some talks between President Trump and Democratic leaders, but those seem to have gone nowhere. So I wouldn't expect this to result in very much in terms of infrastructure. I think that would need a separate deal.

INSKEEP: Got you.

And now you - you mentioned that, in your view, spending is not so bad relative to the size of the economy. The deficit, however, is quite large. We're up around Great Recession levels of around a trillion dollars, in that neighborhood - and no sign of that changing. Is that dangerous to the United States?

FURMAN: I don't think it's dangerous in the short run. One of the ways to measure the dangers of deficits is to look at interest rates, and they're extremely low. You know, that being said, I would much rather have seen this deal paid for. That's the way we did it in the Obama administration when we did deals like this in 2013 and 2015. That would put us in a better position over the medium and long run. It just was a hard conversation to have when one party refused to put any form of revenue or tax loopholes on the table.

INSKEEP: Oh, you would have liked to have seen this level of spending paid for with some kind of tax increase, maybe rolling back some of the 2017 tax cuts.

FURMAN: You could do a tax cut - tax increases to pay for it. You could do low-priority spending cuts to pay for it. I think that would have been the ideal way to do this deal. But the most important thing is it does give us certainty and predictability for the economy over the next two years.

INSKEEP: Mr. Furman, thanks so much.

FURMAN: Thank you.

INSKEEP: Jason Furman is a professor of economic policy at the Harvard Kennedy School of Government. Transcript provided by NPR, Copyright NPR.