Trillion-dollar deficits back?

The era of trillion-dollar budget deficits is about to make a comeback — and a brewing budget deal could mean their return comes just next year.

Talks on a budget-busting spending pact that would give whopping increases to both the Pentagon and domestic programs have been inching closer to an agreement, aides and lawmakers said.

GOP defence hawks are prevailing over the party's depleted ranks of deficit hawks while Democrats leverage their influence to increase spending for domestic priorities such as combating opioid misuse.

Details are closely held and subject to change. But at issue is a two-year deal to increase crunching caps on spending set by a failed 2011 budget deal. Republicans have pushed for defence increases in the neighbourhood of $80 billion a year and have offered Democrats nearly as much — $60 billion or so per year — for non-defence programs.

Add in $80 billion to $90 billion worth of hurricane aid for Texas, Florida and Puerto Rico, health care funding and money for President Donald Trump's border security plan, and the final tally could total close to $400 billion. 

"Republicans for years have made all of these bold promises to rein in spending," said Brian Riedl, a budget analyst at the conservative Manhattan Institute. "And they're doing the opposite."

The negotiations are bipartisan since it takes votes from Democrats to lift the budget caps and advance a follow-up omnibus spending bill, whose overall cost is likely to exceed $1.2 trillion. 

"Right now, everything I'm hearing grows the size of government at 13 per cent," said Rep. Mark Meadows, R-N.C., citing back-and-forth budget offers. "And that's a non-starter for conservatives."

"This budget dysfunction has a human cost, and our military is bearing the brunt of it," said Mac Thornberry, chairman of the House Armed Services Committee, citing a spate of casualties from training accidents last year.

The potential agreement would significantly exceed Trump's request for a $54 billion increase in defence spending — to $603 billion before adding war funds — above the current cap. Thornberry, R-Texas, said negotiators are "very close to a budget agreement."

The budget caps are the hangover from the 2011 Budget Control Act, negotiated between Republicans and Obama, that prevented a default on the national debt and established a deficit-cutting supercommittee. But the failure of the supercommittee left behind unrealistic automatic spending cuts, known as sequestration, and today's stringent spending caps.

Deals in 2013 and 2015 eased the effects of sequestration by replacing cuts to domestic agency operating budgets and the Pentagon with spending cuts and fee increases elsewhere in the budget. Those offsetting measures tended to be relatively pain-free, though.

This year's looming deal is too big, however, to be fully offset with easy cuts elsewhere so Capitol Hill leaders would simply be adding much of its costs straight to the $20.6 trillion national debt.

In the wake of last year's tax bill, the Congressional Budget Office says the deficit for 2018 will hit about $700 billion — before any fresh increase. Next year's deficit is already estimated to reach $975 billion, so the brewing agreement would mean the first $1 trillion-plus deficit since Obama's first term.