House Republicans' budget 'poison pills' could force spending cuts and wreak havoc on economy – NBC 6 South Florida

• Republican hardliners in the House of Representatives are trying to block a permanent budget agreement to trigger automatic spending cuts through the recently passed Fiscal Responsibility Act.
• Congress faces two expiration dates for federal appropriations, the first of which is Friday and could lead to a partial government shutdown.
• Analysts note that fiscal stimulus has been key to averting a recession and that sudden spending cuts could threaten the economy's shaky recovery.

Efforts by Republican hardliners in the House to block a budget deal ahead of a looming government shutdown could lead to automatic spending cuts later this spring that could put pressure on the U.S. economy's already struggling recovery.

The first funding deadline ends at midnight Friday, when several government agencies, including agriculture, veterans affairs and transportation, are expected to run out of money. The second day will take place next Friday, March 8th. After that, a complete government shutdown would come into effect if there is no funding decision.

President Joe Biden will meet with House Speaker Mike Johnson, R-La., Senate Majority Leader Chuck Schumer, D-N.Y., Senate Minority Leader Mitch McConnell and House Minority Leader Hakeem Jeffries, D-N.Y., on Tuesday morning about the budget crisis .Y.

The Fiscal Responsibility Act, signed into law last June, stipulated that spending would be automatically cut by $4 billion on April 30 if there was no permanent state budget by January 1 this year, according to a research service of Congress analysis.

In addition to the topline figure, there would be a mandatory shift in the share of funds allocated to defense and non-defense purposes. This would result in $33 billion being automatically added to non-defense spending and $37 billion being cut from the defense budget.

The government has relied exclusively on temporary spending legislation since the start of the fiscal year in October, putting FRA's spending-cutting mandate into practice.

The FRA's looming cuts raise the stakes for the upcoming round of funding expirations.

Capitol Hill faces another week of déjà vu of government shutdown. A full-year budget deal to avert FRA cuts appears increasingly unlikely given staunch opposition from the House's ultra-conservative wing.

Derailment of the Freedom Caucus

Members of the House Freedom Caucus, a coalition of hardline conservatives, have worked to derail a permanent budget. Instead, they want to extend the current temporary spending resolution for the remainder of the fiscal year and ensure that FRA's spending cuts take effect on April 30.

Last Wednesday, the group sent a letter to Johnson urging him to include several hardline Conservative policy provisions in future budget negotiations.

The proposals, which include defunding Planned Parenthood, Biden's Green New Deal and banning funding for DEI programs, would be dead upon arrival in the Democratic-majority Senate, effectively making them “poison pills.” which would destroy any budget agreement involving them were included.

Johnson has previously criticized the government for continuing to fund it with short-term bills.

But he could ultimately leave the Freedom Caucus to keep his job and avoid the dire fate of his predecessor, former House Speaker Kevin McCarthy. McCarthy was the first speaker to be impeached, an initiative of the Freedom Caucus after a dramatic episode that also nearly resulted in a government shutdown.

Senate leaders have called on the House of Representatives to abandon political games and reach an agreement on a general budget.

“As always, the task at hand requires that everyone move in the same direction, toward clean means and away from poison pills,” McConnell said on the Senate floor Monday.

Economic consequences

Government shutdowns typically leave markets relatively unscathed. However, if the FRA's automatic spending cuts take effect, they could shake the overall economy's flagging recovery.

“Additional fiscal stimulus would be required for a soft landing in 2024 (such stimulus definitely kept the economy stronger for longer in 2023),” Nancy Lazar, chief global economist at Piper Sandler, wrote in a note Monday.

Lazar added that government spending programs under President Joe Biden, such as student loan forgiveness, tax cuts and the CHIPS Act, have been crucial in stimulating the economy during its post-pandemic recovery. According to Lazar, these measures are a fiscal tailwind that can boost business confidence.

“Fiscal stimulus could easily result in an additional 1.5 percentage point increase in GDP this year,” Lazar wrote.

But House Republicans' desire to craft a general budget plan could suppress that incentive.

The Congressional Budget Office estimated in January that extending the spending terms of current short-term resolutions “could result in across-the-board cuts of 5 to 9 percent in nondefense funding and zero to 1 percent in defense funding.”

Failure to pass a general budget also leaves the public with questions about the government's priorities, which are often reflected in a long-term spending plan.

“It's one thing to have short-term CRs so we have additional time to negotiate in good faith… but it's a completely different thing to do a one-year CR because we have no intention of doing our job. Sen. Patty Murray, D-Wa., said in December.

“If we put our government on autopilot, we are telling the World Congress that it is asleep at the wheel.”