“The president has indicated, if the spending caps going all the way back to the 2011 deal are not met, then we will sequester across-the-board, both defense and nondefense, excluding entitlements, but we will run by those rules,” Kudlow said during The Hill’s Newsmaker Series event in Washington. “That’s tough stuff. I think that’s appropriate.”

ADVERTISEMENT

Kudlow was referring to budget caps set in place in the 2011 Budget Control Act (BCA), a law that was meant to force bipartisan cooperation on budgeting by threatening steep cuts to both defense and nondefense spending.

Without legislation to raise the caps, 2020 defense spending would drop $71 billion and nondefense spending would drop $54 billion from current levels — about a 10 percent across-the-board cut.

In Trump’s budget request, he proposed sticking to those caps but putting $96 billion of additional defense spending into an off-budget account, a maneuver Congress would have to legislate.

But Trump’s threat could scuttle that deal. If Trump vetoes legislation raising the caps, the government could eventually shut down when the new fiscal year begins in October or keep running on stopgap measures. In that scenario, the BCA law would kick in about mid-December, requiring the federal government to lower spending to the caps level, a process known as sequestration.

Trump has not made the threats to implement a full sequestration publicly.

The Hill's Newsmaker Series event on tax cuts and small business was moderated by editor-in-chief Bob Cusack and sponsored by the Job Creators Network.