New Speaker Mike Johnson’s First Big Test

The new speaker says he'll look to offset the cost of aid to Israel.
SIPA USA
By Yuval Rosenberg

Here’s some good news: It’s Friday!

New Speaker Mike Johnson’s First Big Test

Newly elected House Speaker Mike Johnson will soon face his first big budgetary tests: He has three weeks to work out a deal with Democrats to fund the government and avoid a shutdown of federal agencies. He will need to navigate a path to an agreement with Senate Democrats on the 12 annual appropriations bills, a challenge made more complicated by the fact that House Republicans have pressed for lower spending than included in the Senate’s bipartisan bills. And he will have to decide how to approach a White House request for billions in aid to Israel and Ukraine that has divided Republicans.

Johnson, as The Washington Post’s Jacob Bogage notes, "has focused more on social issues than on economic policy during most of his career on Capitol Hill." In a wide-ranging and news-making interview with Fox News host Sean Hannity Thursday night, the new speaker provided some additional details about how he’ll approach those pressing fiscal issues.

Separating aid to Israel and Ukraine: The Biden administration has asked Congress for a $106 billion emergency funding package that links $14.3 billion in aid to Israel, a plan that’s popular with Republicans, with $61.1 billion in additional assistance to Ukraine, an effort that has run into increasing resistance from GOP lawmakers.

Johnson has opposed sending more money to Ukraine, but he told Hannity that the United States cannot abandon the effort to beat back Russian President Vladimir Putin’s forces. "We can’t allow Vladimir Putin to prevail in Ukraine because I don’t believe it would stop there. And it would probably encourage and empower China to perhaps make a move on Taiwan," Johnson said. He added: "We’re not going to abandon [Ukraine], but we have a responsibility of stewardship — responsibility over the precious treasure of the American people and we have to make sure that the White House is providing the people with some accountability for the dollars."

Johnson said that the House will consider aid to Israel and Ukraine separately and that he had delivered the same message to the White House earlier in the day. "I told the staff at the White House today that our consensus among House Republicans is that we need to bifurcate those issues," he said.

Johnson said that the House is set to provide $14.5 billion for Israel, slightly more than the administration has requested. "But here’s the thing that distinguishes House Republicans from the other team," he said. "We’re going to find pay-fors in the budget. We’re not just printing money to send it overseas. We’re going to fund the cuts elsewhere to do that."

Republicans may look to offset all of the emergency spending. "That’s actually the most important part here, is paying for and offsetting supplemental spending, because it’s tens of billions, if not 100 billion-plus dollars," Republican Rep. Chip Roy of Texas told The Hill this week.

Johnson also sounded a note of skepticism about the administration’s proposed humanitarian aid for people in Gaza. "You do not want to further empower the terrorist groups. Our heart goes out to innocent Palestinian people, of course, as we do to anyone who’s in a terrible situation like that," he said. "We have to be very discerning in our policy and in our approach to this."

Government funding: Johnson has already outlined a plan for navigating the November 17 shutdown deadline, saying that he wants to quickly pass the seven remaining full-year spending bills but also proposing a stopgap measure to keep the government running into mid-January or mid-April.

Former Speaker Kevin McCarthy was ousted from his job after relying in part on Democratic votes to defuse the last such deadline threat at the end of September. House hardliners have indicated they will give Johnson more leeway than they allowed McCarthy, but some are still pressing for details about overall spending levels in the GOP’s plans and some are reportedly already pushing back against the possibility of a "clean" continuing resolution that would extend funding at current levels without extracting additional concessions.

"I think for any continuing resolution to pass is going to have to have some conservative victories in it, whether that’s border or some sort of cut," Rep. Andy Ogles of Tennessee said, according to The Hill.

And Rep. Thomas Massie of Kentucky told reporters he would support a year-long CR, an approach unlikely to find favor among other conservatives. "I think Mike Johnson has a great period here, where it’ll be at least 30 days before we get stabby again," Massie joked. "There’s no real leverage in it for us to have this shutdown impending, so if I were him in this grace period, I would buy myself the entire year of runway."

In his interview with Hannity, Johnson seemed to indicate he favored something other than a clean funding extension. "We’re working through this with the ideas and trying to ensure that if another stopgap measure is required, that we do it with certain conditions," he said.

While House Republicans work out their spending plans, Senate Democratic Leader Chuck Schumer has warned against trying to cut full-year funding levels below the caps set earlier this year as part of the bipartisan deal to raise the debt limit. "They’ll be dead on arrival," Schumer said this week. "All they’ll do is waste more time in a moment where every day counts."

Number of the Day: 3.4%

Inflation held roughly steady in September, according to data released by the Commerce Department Friday. The personal consumption expenditures (PCE) price index rose 3.4% on a year-over-year basis, matching the results recorded in July and August.

The closely watched core PCE price index — which removes volatile food and fuel prices to provide a clearer sense of the underlying inflation dynamic — edged lower, dropping to 3.7% on an annual basis compared to 3.8% the month before. On a monthly basis, however, the core inflation rate rose to 0.3%, up from 0.1% in August.

Consumer spending data from the same report indicates that Americans are still shopping and going out at a brisk clip, raising concerns about persistent inflationary pressures in the economy. But most analysts expect spending to ease in the fourth quarter of 2023, which could help reduce that upward pressure. "Consumers continued to live beyond their means in September, with personal spending growth far outstripping income gains," said Bloomberg economists Stuart Paul and Eliza Winger. "We think that dynamic cannot persist much longer."

Chart of the Day: A Broken Tax System?

Historically, tax revenues have increased significantly during economic booms and then declined during slowdowns as unemployment rises, but according to Bobby Kogan, senior director of federal budget policy at the liberal-leaning Center for American Progress, that dynamic is broken.

Writing at MSNBC Friday, Kogan argues that thanks to the tax cuts passed under Presidents George W. Bush and Donald Trump, revenues no longer rise very much even when the economy is booming. One result is that deficits have been expanding, with no sign of reversal.

"Prior to the tax cuts being enacted, the Congressional Budget Office projected long-term stability of the debt-to-GDP ratio," Kogan writes. "Now, however, the CBO projects that debt is on track to rise as a percent of GDP indefinitely, with revenues now significantly lower and no longer projected to match primary (noninterest) program costs."

Kogan says that during the late-‘90s economic boom, tax revenues grew from 17.9% of GDP in 1995 to 20% in 2000. During 2023, however, despite solid economic growth, tax revenues have been relatively stagnant at 16.5% of GDP.

Kogan’s chart below shows the change in the relationship between tax revenues and unemployment in the wake of the Republican tax cuts — a new weakness that has dire implications for the federal budget deficit. "If not for the regressive tax cuts initiated under presidents Bush and Trump, we would have been looking at a stable debt-to-GDP ratio," Kogan writes. "Any discussion of how to change our fiscal path should focus first on generating additional revenue lost to these tax cuts."

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