Will the government fall off the fiscal cliff?

Congress' next few months are likely to be filled with drama, as lawmakers face tackling the debt ceiling, negotiating a new budget deal to lift limits on government spending and trying to head off a government shutdown this fall.

Lawmakers return to Capitol Hill this week from their Memorial Day recess facing two solid months of legislative hurdles before their scheduled five-week recess in August.

"There is so much to do, and there's so much uncertainty out there, that we are heading into a very intense two-month work period, and if we're going to do anything this year, we have to do it now," warned Jim Dyer, principal at the Podesta Group who previously served as the House Appropriations Committee's staff director.

Budget experts, including Dyer, and lawmakers are expecting a negotiation for a major fiscal deal with the timing for that likely to be determined by the deadline to address the debt ceiling. That is, lawmakers might have to reach a deal before Congress moves on to approving government funding for 2018.

If Congress fails to complete these tasks, the U.S. could default on its debt; all discretionary spending -- including both defense and non-defense -- would be slashed with cuts; and the government would shut down. 

The debt limit 

Treasury Secretary Steven Mnuchin has called on Congress to raise the debt limit before lawmakers leave for the summer and has specified that it should be a "clean" increase -- a demand that the conservative Freedom Caucus quickly rejected. The group said in a statement that any debt ceiling increase should be coupled with spending cuts in exchange. For context, Democrats have only ever agreed to a "clean" lifting of the debt limit.

For the last debt ceiling deadline in 2015, Congress was able to wait until October to address it. As it usually does, the Treasury Department has been relying on so-called "extraordinary measures" since mid-March of this year to buy more time but time may be running out sooner than previous years. When the threat of a default becomes more pronounced, that could spur a much larger fiscal deal.

"If there is to be a budget deal, and I believe there has to be a budget deal, I think the action-enforcing event will be the debt ceiling," Dyer said. "It's like the bitter medicine that no one wants to take, but they know they have to take it anyway if they're going to survive."

The budget deal

Since 2013, Congress has twice passed two-year bipartisan budget agreements to lift spending limits that were put in place by a 2011 law.

The first was negotiated by then-House Budget Chairman Paul Ryan, R-Wisconsin, and his Senate counterpart, Patty Murray, D-Washington. The last one, in 2015, was reached by then-Speaker John Boehner, R-Ohio, Senate Majority Leader Mitch McConnell, R-Kentucky and his Democratic counterpart, Harry Reid of Nevada. The 2015 deal will expire at the end of September, and if Congress doesn't pass a new one, spending limits from the 2011 law will take effect.

In his budget blueprint for 2018, President Trump proposed raising defense spending levels by $54 billion and cutting the same amount, $54 billion, for non-defense domestic programs, which cover the Department of Homeland Security, Department of Veterans Affairs and Department of Health and Human Services, among others. If his plan were to become law, domestic programs not related to defense would face $57 billion in cuts below their current level of funding.

While Congress, including Republicans, declared the president's budget "dead on arrival," most Republicans agree the military needs more funding. Many also agree that non-defense domestic programs don't require spending hikes. Under President Obama, Democrats only accepted equal increases between both sides of the budget. But now with a unified Republican government, this debate over what to increase, and by how much, is expected to be the biggest sticking point in these negotiations.

"I don't believe all dollars are the same. I think defense dollars are the absolute priority right now," said Rep. Kay Granger, R-Texas, following a closed-door GOP conference meeting about the budget agenda. Granger chairs a subcommittee that oversees Pentagon funding.

Sen. John McCain, R-Arizona, signaled that he'd support a bipartisan budget deal that also raises the debt ceiling, saying he would be "agreeable to anything that increases defense spending." But asked if he'd also be in favor of domestic spending increases, he wasn't as adamant.

"No, no, no, no," McCain said. "Although there are some that I would increase: the CIA, the FBI, Homeland Security and those, but I don't think that some of our domestic programs are in the same level of urgency as defense is. This is the same strategy that gave us sequestration: treat them all the same. That's crazy."

Rep. John Yarmuth, D-Kentucky, ranking member on the House Budget Committee, said that a budget deal that only raises spending limits on defense is out of the question.

"Absolutely not," he told CBS News. "That would be a non-starter. I don't think there would be any Democratic votes for that."

A leader of the moderate Tuesday Group, Rep. Charlie Dent, R-Pennsylvania, is urging his colleagues to craft a bipartisan budget deal that raises the debt limit and lifts both spending levels for defense and non-defense, satisfying Democratic demands.

"It's unrealistic to think that we're going to be able to increase defense entirely at the expense of non-defense," Dent said.

Neither Ryan's office nor McConnell's office responded to requests for comment. 

Government funding for 2018

While a budget deal would increase spending caps, Congress would still need to pass an appropriations package that complies with those new limits. And despite GOP control of the White House and Congress, Democratic votes will be needed to advance a budget agreement that in turn would determine spending levels for an appropriations package. Both pieces of legislation require 60 votes in the Senate in order to reach a final vote.

"If you're going to prevent a government shutdown in September, you have got to have renegotiated budget caps," Dyer said.

Experts suspect Congress will, as they've done each year in recent memory, pass a continuing resolution (CR) by Sept. 30 to prevent a government shutdown to buy more time for the larger negotiation that would eventually determine the substance of a 2018 government spending package in December.

A budget deal that raises spending limits and debt ceiling won't be a "grand bargain," said Bill Hoagland, senior vice president at the Bipartisan Policy Center, who spent 25 years on Capitol Hill working on budget issues and appropriations. But he said it might encompass "modest modifications to the tax code," rather than a comprehensive tax reform package.

"The debt limit, the funding of the government, health care and maybe a little bit on the tax side will all be front and center come this fall and this is the opportunity for some tradeoffs," he said. "[As for] the man who wrote the book "The Art of the Deal," this is when we'll have to see whether or not he can really pull off a deal and pull all these pieces together."

  • Rebecca Shabad

    Rebecca Shabad is a video reporter for CBS News Digital.