Good evening and welcome to what’s sure to be a busy November! Let’s get right to it.
House GOP’s Israel Aid Plan Would Add Billions to Deficit: CBO
House Speaker Mike Johnson’s plan to cut IRS funding to pay for the cost of a $14.3 billion aid package to Israel would add billions to the deficit over the next 10 years, according to a new estimate from the Congressional Budget Office.
The nonpartisan budget scorekeeper projected that rescinding more than $14 billion in IRS funding as the House GOP proposes to do would scale back the tax agency’s enforcement and consequently decrease revenues by $26.8 billion from 2024 through 2033. The revenue loss would far outweigh the IRS spending cuts, resulting in a net increase in the deficit of $12.5 billion — and the aid to Israel would bring the total cost of the plan to nearly $27 billion.
IRS Commissioner Danny Werfel said Tuesday that the cuts to his budget in the House bill would increase the deficit by far more, estimating it would add $90 billion over 10 years — a figure that The Washington Post reports is “based on IRS modeling that shows a 6-to-1 ratio of money spent on tax enforcement to revenue collected.”
House plan is DOA in the Senate: The CBO score was seen as a blow to the House plan, particularly given that if the new speaker had not included the IRS cuts, the aid for Israel would likely pass the House with strong bipartisan support, potentially jamming the Senate and lawmakers who favor packaging aid to Israel with more money to support Ukraine in its war against Russia.
In truth, though, the CBO report is likely little more than a formality at this point since the new House Republican plan was already doomed in the Senate, where Democrats oppose the IRS funding cuts and are looking to combine aid to Israel with the Ukraine assistance and other emergency funding requested by President Joe Biden.
Senate Majority Leader Chuck Schumer on Wednesday called the House plan “totally unserious and woefully inadequate” and criticized its fiscal effects. “Here, the House is talking about needing a pay-for to reduce the deficit – and they put in a provision that actually increases the deficit. Why? Because they don't want their super-rich, mega-wealthy friends to be audited by the IRS, like every other citizen is,” Schumer said. “So the House GOP proposal is not going to go anywhere. It’s dead before it even is voted on.”
Schumer urged Johnson to start over in a more bipartisan fashion, but the speaker reportedly told a gathering of Senate Republicans that military aid to Israel must move as a standalone bill because a larger package cannot pass with the support of the House Republican majority. Johnson reportedly also told the senators that he backs more aid to Ukraine but that it would need to be paired with reforms to border security. The speaker, relatively unknown to his Senate counterparts, reportedly also said that he’s focused on passing what he can through the House and would worry later about reconciling those bills with Senate versions.
With the November 17 deadline to avoid a government shutdown approaching, Johnson also said he will look to pass a stopgap spending bill that runs through mid-January rather than the mid-April timeframe he had previously said was also a possibility.
Biden threatens a veto: The White House has made clear that the House plan is unacceptable to President Joe Biden, who would veto it if it somehow lands on his desk.
In a lengthy and forceful statement issued Tuesday evening, the White House slammed the GOP plan as unnecessarily politicizing aid to Israel, excluding essential humanitarian assistance and failing to meet the urgent needs of the moment.
“It inserts partisanship into support for Israel, making our ally a pawn in our politics, at a moment we must stand together. It denies humanitarian assistance to vulnerable populations around the world, including Palestinian civilians, which is a moral and strategic imperative. And by requiring offsets for this critical security assistance, it sets a new and dangerous precedent by conditioning assistance for Israel, further politicizing our support and treating one ally differently from others,” the White House said. “This bill is bad for Israel, for the Middle East region, and for our own national security.”
The bottom line: Even with the new CBO score, Johnson and House Republicans plan on passing their Israel aid bill on Friday, setting a confrontational tone for the series of budget battles that lie ahead — and making clear that they have priorities that take precedence over deficit reduction.
Quote of the Day
“I hope the Senate’s success today shows Speaker Johnson and House Republicans that bipartisanship is the way to go. The American people won’t support the futile exercise of passing partisan, extremist legislation that has no chance of becoming law, which is what the House is doing right now. Their appropriations bills are loaded with poison pills that they know are not going to be accepted in this chamber or by Democrats in their chamber and they make cuts in the budget that goes against the agreement we made during the debt ceiling [debate].”
− Senate Democratic Leader Chuck Schumer, after his chamber passed three bipartisan appropriations bills covering military construction and the Departments of Veterans Affairs, Agriculture, Transportation and Housing and Urban Development. The appropriations, packaged together in a bill called a minibus, passed by a vote of 82-15.
Fed Holds Key Interest Rate at 22-Year High
The Federal Reserve will continue to watch and wait as its battle against inflation plays out.
As expected, the Federal Open Market Committee announced Wednesday following its seventh meeting of the year that it would hold the federal funds in a target range between 5.25% and 5.5%, where the key rate has been since July.
In a statement, the FOMC said the economy is showing signs of strength and reiterated its view that inflation is still too high, leaving open the possibility of additional rate hikes at future meetings, depending on how the economy performs in the coming months.
At a press conference, Fed Chair Jerome Powell told reporters that while the central bank is clearly making progress, it is “not confident yet” that financial conditions are sufficiently restrictive to achieve its goal of 2% inflation, and that its effort to bring inflation under control still has “a long way to go.”
“The full effects of our tightening have yet to be felt,” Powell said. “Given how far we have come, along with the uncertainties and risks that we face, the committee is proceeding carefully.”
What the experts are saying: Jason Furman, who chaired the White House Council of Economic Advisers during the Obama administration, applauded the Fed’s cautious approach. “The Fed did the right thing (yet again) today,” he wrote. “No mission accomplished on inflation--they recognize more work to be done. But that work may not require more rate hikes and they de facto raised the bar on those hikes to something that we hopefully won't reach.”
Joseph Brusuelas said investors believe the Fed will likely avoid any further rate hikes. “Market clearly thinks that the Fed is done hiking rates & I agree with that,” he wrote.
Nancy Vanden Houten, lead US economist at Oxford Economics, said she too thinks the Fed is done, although there is always a chance of more rate hikes at some point. “We don’t expect further Fed rate hikes, but the risks continued to be tilted in that direction,” she said. “The Fed needs to see more evidence of slower job and wage growth to be convinced that inflation is on a sustainable path back to 2%.”
The bottom line: Inflation has come down significantly but is still too high for the Fed. The central bank will continue to monitor the economy closely while maintaining the option to raise rates again if inflation takes a turn for the worse.
Fiscal News Roundup
- Speaker Johnson Tells Senate GOP He Backs Ukraine Aid, Funding Path Through Jan. 15 – Politico
- Speaker Johnson Tells Senate GOP That Israel Money Must Move by Itself – The Hill
- House Gop’s Israel-IRS Bill Could Add More Than $26 Billion to Deficit: CBO – The Hill
- Senate Passes Three Fiscal 2024 Spending Bills in ‘Minibus’ – Roll Call
- US Senate Passes Three Bipartisan Appropriations Bills – Reuters
- Fed Leaves Interest Rates Unchanged but Signals Another Hike Next Month Is Still Possible – Washington Post
- U.S. Job Openings Rise Slightly to 9.6 Million, Sign of Continued Strength in the Job Market – Associated Press
- Treasury Details Plans to Step up Size of Bond Sales to Manage Growing Debt Load and Higher Rates – CNBC
- Stanley Druckenmiller Says Government Needs to Stop Spending Like ‘Drunken Sailors,’ Cut Entitlements – CNBC
- Infant Deaths Have Risen for the First Time in 20 Years – New York Times
- Why Pharmacy Workers at CVS and Walgreens Are Protesting – New York Times
- G.O.P.’s Buck Won’t Seek Re-election, Citing His Party’s Election Denialism – New York Times
- House Appropriations Chair Kay Granger Will Not Seek Reelection – Politico
Views and Analysis
- Mike Johnson Just Confirmed How Unserious He Is – David Firestone, New York Times
- What Will Democrats Give Up to Get More Aid for Ukraine? – Ed Kilgore, New York
- House GOP Approach to Israel Aid Risks Eroding US Leverage – John T. Bennett, Roll Call
- Social Security Is Nearing a Crisis – Bloomberg Opinion Editorial Board