Washington Insider -- Monday

Senate GOP Budget Ignores President, Cuts Defense

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Focus This Week is on Disaster Aid

A procedural vote in the Senate could come Tuesday on a disaster aid plan in the Senate.

Details are uncertain just yet as there is likely some consideration being given to the heavy Midwest flooding situation. The version most recently was for $14.2 billion.

A House-passed supplemental appropriations bill would authorize $3 billion in assistance for agricultural losses, largely directed at hurricane damage to crops in the Southeast last fall.

But some think that the Midwest flooding will give lawmakers some pause and they will include amounts for those affected producers.

USDA Secretary Sonny Perdue expressed view a Midwest flooding aid should be included in any aid plan as USDA disaster assistance programs are unlikely to be sufficient.

US-China Trade Talks Another Attention Point

A US trade negotiating delegation will be in Beijing late this week.

Led by U.S. Trade Representative Bob Lighthizer and Treasury Secretary Steven Mnuchin, the two will visit Beijing for two days beginning Thursday for another round of trade negotiations with Chinese Vice Premier Liu He. These will be the first face-to-face talks since President Donald Trump delayed a March 1 deadline to raise tariffs on $200 billion worth of Chinese imports.

A Chinese delegation led by Vice Premier Liu He will be in Washington to continue the talks starting April 3.

The goal is to button down an agreement by the end of April.

Washington Insider: Senate GOP Budget Ignores President, Cuts Defense

The Hill is reporting this week that budget and trade fights are continuing to become increasingly complicated. For example, the Senate Budget Committee last Friday unveiled a Fiscal Year (FY) 2020 resolution that ignores the president’s request for turbo-charging defense spending in the Overseas Contingency Operation (OCO) fund, leading to a proposed net decrease in both defense and nondefense spending.

If that seems complex, that is because it is. In the president’s budget proposal, he called for increasing overall defense spending to $750 billion, but did so by adding nearly $100 billion to OCO—a gimmick that allowed the administration to technically claim major decreases in both defense and nondefense spending that are due to go into effect in FY 2020 by law.

The Senate's proposal, which will be marked up in committee next week, stuck to the drastic cuts mandated by law, putting defense spending at $576 billion and nondefense spending at $542 billion, which together amount to a $126 billion drop from current spending caps.

The Senate resolution put OCO funding at $67 billion, assuming it was all allocated for defense, where Trump’s plan raised OCO spending from $69 billion this year to $165 billion.

Combined, that would put defense spending at $643 billion, some $73 billion below the current level of $716 billion, and well below the president's request. Nondefense spending would drop by $54 billion from current levels, assuming none of the new OCO funding were allocated for nondefense purposes.

But the Senate resolution also includes language that would allow defense spending to rise to $750 billion if a legal deal were reached to raise the caps. That, some budget watchers say, should be seen as the resolution's true goal.

"Strengthening America’s future for our children and grandchildren begins by putting our nation on a more sustainable fiscal path and reducing our nation’s deficit spending, which is approaching $1 trillion per year,” said Senate Budget Committee Chairman Mike Enzi, R-Wyo.

The resolution would also instruct congressional authorizing committees to find $94 billion of mandatory cuts, which Enzi said were linked to "reasonable reforms."

Enzi's proposal, however, strays from the GOP orthodoxy of putting budgets on a path to balance over 10 years. Instead, it outlines mere deficit reductions over a five-year window.

The Senate's budget resolution is the latest salvo in the debate over 2020 spending and shifts focus to the Democratic majority in the House for its proposal. Democrats say increasing the spending caps is the top priority.

"Without action, our defense and non-defense investments will fall by ten percent, crippling our national and economic security," said Sam Lau, a spokesman for House Budget Chair John Yarmuth, D-Ky. "While Senator Enzi’s budget signals support for an increase in defense spending to a total of $750 billion in 2020, it ignores the harsh cuts to non-defense programs that are at risk this year."

However, House Democrats are still struggling to reach agreement on a budget within their caucus. Top Democrats on the committee want to pair any defense spending increases with nondefense spending increases but the left flank of the party is looking to either scale back defense spending or shift more of the increases to the nondefense side.

There are so many moving parts concerning US-China Trade, longer-term U.S. trade policies for North America, Europe, among others, that the never-ending budget and spending fights seem almost normal. However, as is usually the case, the nearer the 2020 elections loom, the more intense all policy wars will become, and the FY 2020 budget battle is clearly one producers should watch closely as it intensifies, Washington Insider believes.

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