Is the Tax Cut Becoming a Burden on Other Parts of the MAGA Agenda?
Extending the 2017 package is the first big legislative hurdle of the second Trump term.
The late Robert Novak is often credited with saying, “God put the Republican Party on Earth to cut taxes. If they don’t do that, they have no useful function.”
The simple reading of Novak’s witticism is that tax cuts are and always will be the GOP’s top priority. A more cynical reader, however, might syllogistically conclude the GOP isn’t good for much else.
President Donald Trump found this out the hard way in his first term. Surely, the Tax Cuts and Jobs Act provided real tax relief for American families, incentivized real investment, and led to real GDP growth for the U.S. economy. Trump, McConnell, and others had to spend real political capital to get it done. And yet, the TCJA, signed into law in December 2017, was also a way for the GOP to recover after Obamacare repeal failed in July of that year.
Congress must again pass Trump’s agenda through the budget reconciliation process, but it is no longer 2017. Trump is back with a much larger and more defined mandate and much more political capital (though he spent not a little of it on Liberation Day and what has ensued). Immigration and inflation were the animating issues of the 2024 campaign, and Trump gave voters a simple solution to these problems: deport and drill. Tax cuts were promised, too, but they played a supporting role. Now, however, the tax cuts have taken center stage, and they remain the largest risk in delaying, if not derailing, the rest of Trump’s agenda.
Before Congress left for Easter break, they managed to pass the budget resolution that provides instructions for committees as they dive into the nitty-gritty of the “one big, beautiful bill.”
Some elements of the reconciliation package are straightforward and deliver on Trump’s chief promises. For example, Congress has authorized up to $175 billion for increased border funding through the reconciliation process—more funding through the appropriations process will follow.
Congress is set to return to Capitol Hill on Monday, where Speaker Mike Johnson has set an aggressive timeline to bring the reconciliation package to the floor. The House and Senate will be in session for four weeks before their Memorial Day break, and Johnson wants to pass the package the week of May 19.
Already the House’s budget reconciliation process has suffered delays. In early January, Johnson was saying he wanted reconciliation done and dusted by late April. By February, it was early May. It’s no surprise, then, that House and Senate sources have cast serious doubt on Johnson’s latest deadline, with rumors percolating in the media that July 4 or August recess seems more likely.
How much further could Johnson’s deadline be extended, now that Congress is having the hard conversations in which members find out exactly what they aren’t getting?
The Treasury Department might provide an answer to that question next week. The Treasury Department is expected to give Congress its estimated “X date,” the day when the government will exhaust its ability to borrow, as tax receipts become known.
It could also be possible the rumored “real” deadlines could be moved up.
Both the House and Senate have included instructions to address the debt limit. The House version would raise the debt ceiling by $4 trillion, while the Senate looks to increase it by $5 trillion. In all likelihood, this would punt further debt ceiling debates until after the 2026 midterms. Without the budget reconciliation process, Congress would have to pass a standalone bill that would require 60 votes, risking a possible calamity due to Democratic obstruction.
Nevertheless, the race is on to iron out the details of the reconciliation package—its working title, the “Renewing the American Dream Act.”
And it’s something of a miracle Congress is even this far along in the process. The House budget resolution would have been dusted had conservatives not removed their opposition to the resolution after receiving assurances from House and Senate leadership that the reconciliation package would include $1.5 trillion in spending cuts.
The motivation for these deep spending cuts is primarily the economic impact of the tax cut on the public fisc. When all is said and done, the tax cut is expected to be well over $5 trillion. Around $4.5 trillion in deficits created by the continuation of the TCJA might disappear in the final text of the budget reconciliation package if Republicans are allowed to go forward with the currency policy baseline rather than the current law baseline. (That does not mean, however, that those deficits don’t exist.)
All eyes are now on the House Energy and Commerce Committee, which has been instructed to cut $880 billion. A large chunk of those cuts are expected to come from Medicaid, which Democrats have used as fodder for their base.
Rep. Austin Scott (R-GA) told Fox Business on Easter Monday that Republicans are looking at Federal Medical Assistance Percentage (FMAP) changes to meet the target. FMAP reform would be the right scale, but unlikely to succeed. That’s especially true in that Johnson already took FMAP changes off the table in February, and a dozen House Republicans sent a letter to leadership saying they would not support any package that reduces Medicaid benefits on April 14. One of the signatories of that letter, Rep. Nicole Malliotakis (R-NY), recently told reporters, “We’re not going to support anything that would lower the FMAP, and we’re not going to support anything that puts caps on traditional Medicaid.”
“We are still in the process of exploring options throughout our jurisdiction and putting together options for our members to examine,” Energy and Commerce Committee spokesman Matt VanHyfte told PunchBowl. “With that in mind, we are not yet ready to comment on policy-specific items that may or may not be included in the final bill text.”
But Republicans better be ready with those items soon or risk imperiling the problems that propelled Trump to victory. “We’ve got to have Congress fund this operation,” Trump’s border czar Tom Homan said in an interview nearly three weeks ago now. “We got to buy more detention beds. We need more flights. We need more officers. We need more overtime.”
“Is it taking too long? Yes, it’s taking too long,” Homan said. “I wish they would have passed it by now.”
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