Budget Reconciliation
As previously reported, last week Republicans held their annual policy retreat. In his appearance before the group on Monday, President Trump urged the conference “not to get stuck on the details” of a budget reconciliation strategy, clarifying that he does not care whether his priorities are addressed in one bill or two. With respect to tax policy, he said that he intends to keep his campaign promises to eliminate federal income tax on tips, social security payments, and overtime pay, and he wants to reduce the corporate tax rate from 21% to 15% (he did not specify whether the reduced rate should apply only to domestic manufacturing income). Addressing his budgetary preferences, he called for increased spending to complete construction of the border wall and pay for implementation of other border security and immigration policies. Including all of these provisions would significantly increase the cost of the reconciliation package beyond the $4.6 trillion estimate for extension of the expiring TCJA tax cuts.
Speaker Johnson (R-LA) wants the House Budget Committee to mark up a budget resolution, which unlocks the budget reconciliation process by setting top-line numbers for spending and revenue and instructing committees on their individual targets. Once both chambers pass an identical budget resolution, the committees that have received instructions begin drafting language for their parts of the budget reconciliation package.
To report a budget resolution out of the Budget Committee, the Chairman can only lose the support of two members of his own party. The Republican side of the committee includes several fiscal conservatives who have publicly called for substantial cuts to spending. The Speaker argues that it is risky to set spending levels too low in the budget resolution, because the failure of just one committee to ultimately agree on how to achieve aggressive spending cuts could jeopardize the entire budget reconciliation package. Instead, he urges that the budget resolution should set floors for required spending cuts, with additional reductions left to the discretion of the various committees when they write their portions of the reconciliation package. Budget hawks are suspicious that this approach will allow leadership to abandon its prior commitment to cut at least $2.5 trillion in spending.
The budget framework that leadership shared with members last week would authorize an approximately $25 billion net spending increase. Leadership is considering how any tariffs that will be implemented by executive order might be counted as additional revenue raisers, but estimates of the impact of those tariffs will not come close to reaching the floor of spending cuts that hard-liner conservatives are demanding.