Congress Gives Trump a Chance to Recast the Federal Budget
Policy + Politics

Congress Gives Trump a Chance to Recast the Federal Budget

Pence shows his skills by negotiating the deal.

iStockphoto/The Fiscal Times

House Speaker Paul Ryan on Thursday all but guaranteed a relatively modest lame duck session of Congress with his announcement that lawmakers would approve another short-term extension of  spending authority through late March to avoid the possibility of another government shutdown. By kicking the can down the road again, the speaker postponed all the heavy lifting until after President-elect Donald Trump takes office early next year.

Ryan’s decision, announced to members of Congress the same day that Vice President-elect Mike Pence conferred on Capitol Hill with Republican and Democratic leaders, ends an element of suspense over whether GOP congressional leaders would press to cut one last big spending deal with outgoing President Obama, or leave major decision-making on defense and domestic spending policies for the remainder of the fiscal year to the new Republican power structure in Washington.

Related: Here's What Could Scuttle Trump’s Big Spending Plans 

In a move to simplify the post-election legislative session while placating arch conservatives unwilling to take the chance of Obama extracting some last minute concessions, Ryan announced a stopgap spending bill through March 31 to keep the government spending roughly at last year’s levels. Without action now, government spending would run out Dec. 9.

Ryan and his lieutenants said that the short-term extension would allow Trump and his budget advisers to have more input in funding the government through the remainder of the fiscal 2017 year that runs through next Sept. 30. “I think the new, incoming government would like to have a say-so on how spending is allocated," Ryan told reporters.

But some, including House Appropriations Committee Chair Hal Rogers (R-KY) fear the leadership is making a big mistake by postponing final action on current year spending levels, instead of clearing the decks for the new Republican Congress and White House.

House Democratic leader Nancy Pelosi of California said that another continuing resolution would perpetuate uncertainty among federal workers and taxpayers about government funding and add to the chaos of the returning Congress. "They're making a big mistake for themselves,” she said, according to Reuters.  “They're going to have a kettle of fish in March that they can't even imagine.”

Related: Five Things Trump Wants to Do That Liberals Would Love

Indeed, while maneuvering over spending issues during the next several weeks will be fairly pro forma, the fiscal chess board will rapidly begin to expand in January when Republicans begin the task of tearing down many of President Obama’s most cherished policies and implementing an evolving Trump-GOP agenda.

The Republican takeover of both branches will come at a time of renewed concern about runaway spending, as the national debt steadily inches up towards a record $20 trillion. Many conservative lawmakers, including the chairmen of the House and Senate Budget Committees, and government spending watchdogs are clamoring for new approaches to balancing the budget and controlling long-term entitlement growth.

And while the Republicans retained a sizeable majority in the House, 247 to 188, the GOP majority in the Senate shrank slightly. Republicans will now hold a slight edge over the Democrats, 51 to 48, with one more seat to be decided in Louisiana before the end of the year. There are a few major things the Republicans can accomplish on their own without Democratic support, including dismantling many of the key elements of the Affordable Care Act using a byzantine budget process called reconciliation.

But Republicans will ultimately discover that it will be impossible for them to pass many other measures without Democratic support, because of the constant threat of a filibuster in the Senate that would require at least 60 votes to overcome.

Related: Ryan Declares GOP Has a ‘Mandate’ to Enact Sweeping Changes

“Unified Republican control of Congress and the executive branch provides potential for significant changes in fiscal policy,” Edward Lorenzen, a senior policy advisor for the Committee for a Responsible Federal Budget, wrote in a memorandum provided to the media Thursday. “The budget process provides Republicans in Congress tools to enact parts of their agenda over Democratic opposition. However, there are limits on what can be done through the budget process [in the Senate] with 51 votes.”

“Enacting their agenda through the budget process will require some difficult choices that they have been able to avoid in the past and ultimately will require bipartisan support to achieve many of their goals,” he added. 

Here’s a brief summary of some of the heavy lifting awaiting the new Congress in January: 

  • New budget resolutions – Passing just one budget resolution often can be a nightmare for the party in power because of the many conflicting interests, but passing two in the same calendar year may be unprecedented. Yet that is precisely what the new Republican leadership appears to have in mind heading into the new year. 

Related: Despite Differences, President Obama Asks Americans to Unite Behind President Elect Trump  

Last December, Republicans used arcane budget reconciliation rules in the Senate to push through legislation dismantling the Affordable Care Act with a simple majority vote instead of a 60-vote super majority typically required. President Obama vetoed that legislation, but it turned out to be a GOP dress rehearsal for another budgetary assault on Obamacare in January. And this time Trump will be in the Oval Office to sign the legislation.

House Republicans will almost certainly resurrect a fiscal 2017 balanced budget resolution to use as the vehicle for dismantling the heart of the Affordable Care Act. But that would be followed by a fiscal 2018 budget resolution with fresh reconciliation instructions in order to push through Trump’s major tax cuts or reductions in entitlement spending, to make good on GOP pledges.

  • Replacing Obamacare – Dismantling Obamacare will be the relatively easy part for Republicans and Trump. Figuring out what to replace it with will be infinitely more difficult. Some of the replacement provisions discussed by Republicans include a refundable tax credit, expanded use of Health Savings Accounts and high-risk pools for individuals’ with pre-existing medical conditions.

However, there is nothing approximating a consensus among House and Senate Republicans and the Trump camp. Ryan and other House Republicans are promoting their “Better Way” plan, but Senate Republicans and Trump are not on board. As they did before during their practice run last December, Republicans will include a provision in the reconciliation package postponing repeal for two years, to give them time to hammer out a compromise alternative.

Related - Trump Proposes $1 Trillion for Infrastructure Without Raising Taxes

  • Tax Reform – Trump and his Republican allies in Congress are eager to push through major tax cuts and reforms next year, and the drive for that may come sooner rather than later.  Most of the tax reforms would be enacted through reconciliation, although there are a number of Senate rules that may make that difficult, especially because they would substantially reduce revenues over the coming decade and likely drive up the deficit. 

House Ways and Means Committee Chair Kevin Brady (R-TX) has publicly declared that tax reform must be “revenue neutral” over ten years, but that may be difficult to pull off because both Trump’s and Ryan’s competing tax proposals would substantially reduce government revenues. 

“One of the key issues in the budget resolution will be what revenue level is assumed in the budget and what target is set in reconciliation instructions for tax reform,” Lorenzen explained. “That decision will dictate what can and cannot be done in tax reform and the trade-offs that will be necessary.”

  • Lifting spending caps – Sooner or later, the two parties will have to make some hard decisions over long-term spending – and whether to lift the statutory restriction on defense and discretionary domestic spending or keep them in place.  Under current law, the fiscal 2018 spending levels are scheduled to decline in nominal terms from the fiscal 2017 levels, which would make it very difficult to pass appropriations bills at that level.

During the campaign, Trump called for a major boost in defense spending beyond the caps, which experts say would cost $450 billion. He has suggested offsetting the costs with additional reductions in domestic programs, but Democrats aren’t likely to support such a move unless spending was increased as well for domestic programs. 

Related: Dueling Trump and GOP Tax Plans Would both Cause Much Larger Deficits 

  • Debt Ceiling – With the national debt currently at $19.84 trillion and rising,  Republican leaders and the new president will find themselves stuck with the unpleasant task of raising the legal debt ceiling for borrowing by the Treasury. Raising the debt ceiling is typically one of the most onerous tasks because the party in power inevitably is blamed by the minority for recklessly encouraging more borrowing.

Congress passed legislation suspending the debt limit in 2015, but it will be reinstated on March 15.  The Treasury can avoid breaching the debt limit by using “extraordinary measures” for several months, but Congress will need to pass legislation raising the debt limit by late summer or early fall. 

“The need to increase debt limit increases pressure for action on a plan to reduce deficits,” Lorenzen wrote. “While the need to raise debt limit can be blamed on the legacy of Obama, it will be hard to get support for increasing debt limit if the deficit is still projected to grow without action to control it.”