Get Ready for a Washington Train Wreck in December

Republicans in Congress are so focused on passing a massive tax overhaul this year that they’re saying little publicly about another December deadline — the day the government would shut down if the GOP can’t reach a deal with Democrats on spending and other hot-button issues.

Current funding expires Dec. 8, and as hard as it is for Republicans and Democrats to agree on spending, they’ve made the situation worse by punting other difficult issues to December. President Donald Trump is demanding funds for a U.S.-Mexico border wall; Democrats insist on Obamacare subsidies and protection for young undocumented immigrants — and it all may wind up in a huge spending plan that the GOP needs Democratic help to pass.

It’s a crucial test for Republicans seeking to prove to voters they can run the government and fulfill major campaign promises such as their pledge to cut Americans’ taxes. The GOP is eager for a legislative victory ahead of next year’s congressional elections.

“Right now it’s all hands on deck for tax reform, and I understand that,” said Tom Cole, an Oklahoma Republican on the House Appropriations and Budget committees. “But we’ve got to get some sort of bipartisan agreement so the appropriators have enough time to actually put together a bill” to fund the government.

GOP leaders may opt to do the tax overhaul now and put off major spending decisions until until early 2018 by passing a stopgap funding bill. But they’d still need Democratic votes for the stopgap bill — and the Democrats aren’t required to make it easy. They could demand something like the young-immigrant protections in exchange for keeping the government open.

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Government shutdowns have had little impact on financial markets as long as the bills keep getting paid. The Treasury bills market is beginning to show some early signs of angst about when the Treasury might have to again curtail borrowing after the U.S. debt-ceiling suspension ends next month.  

Short-term investors are demanding more for debt maturing in early February to avoid being caught holding securities that are vulnerable to a technical default once extraordinary measures allowing the government to fund itself expire.

Senate Minority Leader Chuck Schumer, a New York Democrat, told reporters Tuesday that Republican and Democratic leaders are negotiating over the spending bill. Democrats have some leverage because Republicans don’t have a filibuster-proof majority in the Senate and some House GOP members are sure to vote against compromise spending bills.

One major dispute is over Republicans’ bid to increase military spending. The 2011 Budget Control Act requires equal levels of military and non-military discretionary spending, and Democrats insist on maintaining that parity. So it would take a major concession — such as providing funds for Obamacare subsidies — to get them to sign off.

‘Aren’t Going Well’

House leaders from both parties have begun discussing a deal on raising spending caps, but the talks “aren’t going well,” according to Drew Hammill, House Minority Leader Nancy Pelosi’s deputy chief of staff.

The Dec. 8 deadline was set in a deal Schumer and Pelosi struck with Trump — against Republican leaders’ wishes — to avoid a government shutdown and debt default in September. They agreed to fund the government at current levels and suspend the debt limit for three months.

U.S. Treasury Secretary Steven Mnuchin can use so-called extraordinary measures to stretch government finances beyond Dec. 8, and he says he’s “comfortable” that federal borrowing capacity won’t run out before the end of January.

Some Republicans want House leaders to consider a debt prioritization bill that would pay creditors before funding other government functions. North Carolina Representative Mark Walker, chairman of the conservative, 160-member Republican Study Committee, said leaders promised to consider such a measure in return for his support for the GOP budget resolution that set up the tax overhaul bill.

Trump Policies

Since the September deal, Trump has taken unilateral actions to reverse policies enacted by former President Barack Obama, in some cases asking Congress to come up with a legislative solution. These issues may get wrapped into the spending plan.

Trump announced he’s ending Obama’s program that protects undocumented immigrants brought to the U.S. as children from being deported. He gave Congress six months to draft legislation providing permanent protection.

Separately, the Trump administration is demanding $1.6 billion for a wall on the southern U.S. border, which Democrats say is a nonstarter.

House Speaker Paul Ryan of Wisconsin said he’ll seek a compromise to pair child-immigrant protections with more funds for border security and immigration enforcement. Senate Majority Whip John Cornyn of Texas said he expects to deal with the issue early next year, although Pelosi has said it must be resolved this year.

Obamacare Subsidies

Democrats also may push for funds in the spending bill to subsidize insurance coverage under Obamacare. The Trump administration decided to stop paying the subsidies, known as Cost Sharing Reductions, that help insurers reduce out-of-pocket costs for low-income consumers.

Republicans say the end of the CSR payments was already factored into 2018 insurance premiums. Ryan rejected an early version of a bipartisan Senate deal that would have included short-term appropriations for the subsidies.

The spending bill could reopen a debate over health insurance for low-income children. A program that covers children under Medicaid, even if their parents don’t qualify for the health insurance program, has expired and Democrats are demanding its renewal.

There may also be calls to include disaster funding for damage from hurricanes or wildfires in Texas, California, Florida and Puerto Rico. Conservative Republicans say the spending should be offset by cutting expenses elsewhere, while Democrats say emergency funds aren’t supposed to depend on reducing other costs.

If lawmakers decide to temporarily extend current spending levels and put off the tough decisions until next year, some lawmakers will object. Government agencies, especially the military, don’t like temporary extensions because they make it hard to plan their costs.

“When you’re talking about the military, it impacts national security and that’s a problem,” said Scott Perry, a Pennsylvania Republican and member of the conservative Freedom Caucus.

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