The split control of Congress resulting from the 2018 midterm elections is not going to lead to a grand bargain on the budget over the next two years that reduces the federal deficit.
Quite to the contrary, the election results mean that the federal budget will be even more of a hyperpartisan issue than it has been during this Congress and that the deficit is going to increase.
The split control will make it easier for Republicans and Democrats to blame each other for the fiscal sins of the past, the spiking deficits of the future and all of the shutdowns and debt ceiling cliffhangers that will be happening day-to-day.
The Democratic majority will give President Donald Trump an even better political foil than he’s had the past two years if (but more likely when) he doesn’t get what he wants. Instead of just blaming Congress, he’ll be able to criticize the Democrat-controlled House for thwarting his agenda. Even if it’s not true, as far as Trump is concerned, everything from a higher deficit to no wall to no military parade to no space force will be the Democrats’ fault.
The budget bottom line is simple: Senate Republicans will have a very different fiscal agenda than House Democrats, and both houses’ tax and spending to-do lists will be at odds with Trump’s plans. Unless there’s a severe economic crisis that requires a fiscal policy response and allows representatives and senators to abandon their established positions, it’s hard to imagine the three sides being able to agree on much of anything over the next two years on the budget.
Here are my top seven federal budget implications of the 2018 election.
1. Lame Duck Madness. The best chance Republicans now have to do away with the Affordable Care Act and to enact another tax cut will be during the lame duck session of Congress that will begin next week. To do that, however, they first will have to adopt a budget resolution that includes reconciliation instructions to repeal ACA and cut taxes…and the budget resolution and reconciliation bill will have to be adopted before the next Congress begins on January 3. Not including Thanksgiving, Christmas and New Years, that’s only about six weeks to get work done that would normally take three months or more to do. And that doesn’t even include the seven appropriations bills that still have to be enacted by December 7.
2. Trillion-dollar (and rising) Deficits. There will be much talk and lots of finger-pointing but little-to-no action over the next two years on reducing the deficit. It wasn’t going to happen if Republicans retained control of both houses of Congress anyway, but it’s difficult to imagine a scenario where the spending cuts and tax increases acceptable to the GOP will be even remotely acceptable to Democrats.
Unless Wall Street demands changes (the long-expected return of the bond market vigilantes), all of the things most likely to be enacted — think infrastructure — will increase rather than decrease the federal government’s red ink. That means that the latest projections from the Treasury/Office of Management and Budget and Congressional Budget Office showing a more than $1 trillion deficit in fiscal 2019 and 2020 now must be considered minimums.
3. Debt Ceiling Cliffhangers. The current suspension of the federal debt ceiling that expires March 1 will provide yet another opportunity for Trump, Senate Republicans and/or House Democrats to withhold their signature or votes unless they get something they want or to stop something they hate.
The assumption that the Treasury will use the same “extraordinary measures” that have been used in the past to delay the day of reckoning on the debt ceiling may be wrong this time if Trump feels the need to create a crisis that will give him leverage over House Democrats. Even if he ultimately wusses out again and the extraordinary measures are implemented, expect Trump to pound his chest and create uncertainty in financial markets about the debt ceiling in the weeks leading up to the deadline.
Also expect Trump to consider only increasing or suspending the debt ceiling for a short time so he can pound his chest more than once before the 2020 election.
4. Multiple Shutdown Showdowns. The House Democratic majority means that there will now be three players in every appropriations fight and that will tremendously complicate what was difficult negotiations without them.
The negotiations will be even worse if (1) Trump uses them as reelection campaign events and (2) House Democrats and Senate Republicans see a clear possibility that, no matter whether it’s a spending increase or decrease, the other side will be blamed.
It’s hard not to see anything but a continual series of threatened shutdowns under these circumstances. Even if Senate Republicans and House Democrats mutually agree to provide the spending increases the other wants, there will be no guarantee that Trump will go along or that he will sign a bill without demanding his own pound of appropriations flesh.
5. Two Years Without A Congressional Budget Resolution. Voting for budget resolutions has only been barely politically acceptable for most representatives and senators in recent years because it enabled reconciliation to be used and, therefore, a filibuster to be avoided in the Senate. That’s how the Affordable Care Act and the Tax Cuts and Jobs Act were both put in place even though the Democrats and Republicans, respectively, didn’t have 60 votes.
But with Democrats in control the House and Republicans in control of the Senate, there will be few changes to mandatory programs and taxes that will be acceptable to both houses…so there will be no need for reconciliation. That will make the political pain of voting for a budget resolution and its projected trillion-dollar deficits completely unnecessary.
(For those who think reconciliation will be needed for a middle class tax cut of some kind…First, see #1: It might be done during the lame duck. Second, if there isn’t enough Democratic support in the Senate for what the GOP wants and, therefore, to prevent a filibuster, House Democrats won’t agree to a budget resolution that allows reconciliation to be used.)
6. Lots Of Deficit-Increasing Legislation. If they agree on anything, Senate Republicans and House Democrats will demand equal spending increases or revenue decreases for their pet programs. Trump will then want equal treatment for his priorities. An even higher than currently projected deficit (see #2) will be the result.
7. The Next Trump Budget Will Be Totally Meaningless. Trump’s first two budgets were little more than political campaign brochures masquerading as official government documents.
Trump’s next budget will be even more political. With little likelihood that anything he proposes will be taken seriously by the split Congress and with the president’s own reelection well underway by next February, the Trump 2020 budget will be even less of a serious fiscal plan that won’t be taken seriously on Capitol Hill and won’t last long enough to be a major discussion topic on that weekend’s political talk shows.
Follow Stan Collender on Twitter by clicking here on @thebudgetguy.
By Bruce Bartlett*
Various pollsters give Democrats a pretty good chance of getting control of the House of Representatives next year, with an outside chance of the Senate as well. Many Democrats are expecting a complete reversal of Trump-Republican policies. This is at best naïve and at worst displays gross ignorance of our system of government.
I don’t wish to rain on the Democrats’ parade, but they must remember that either Donald Trump or Mike Pence will be president until January 20, 2021. All presidents have veto power and enacting legislation over a veto requires a two-thirds majority in both houses of Congress, something Democrats will not have.
Moreover, Democrats’ odds of getting the Senate this cycle are small and their House majority, should they get it, is likely to be slim. Nor are Democrats united on an agenda or their leadership going forward. The issues their candidates for the 2020 Democratic presidential nomination are likely to make will make the achievement of consensus difficult.
This is not to say that there is nothing Democrats can do even with just House control. But they must dampen expectations lest their base become dispirited by their failure to achieve much of anything, legislatively, until at least 2021.
I have some insight on this because I worked in the Senate after Republicans unexpectedly won control in the 1980 elections. Since Democrats still had solid control of the House, bipartisanship was baked in the cake, although at least we didn’t have to worry about a presidential veto.
Moreover, I was still a Republican in 1994 (I’m now an independent) and was involved in planning the GOP agenda in Congress after the Republican takeover that year. Then as now, many activists needed to be reminded that there was a president of the opposite party and his veto pen was full of ink.
Based on my experience, here is a realistic scenario.
First, Democrats can and should investigate Trump and all the corruption among his cabinet and subcabinet that Republicans have turned a blind eye to. But they should not delude themselves that it will be easy. The administration will stonewall and try to run out the clock. Moreover, thanks to Republican budget cuts, Congress lacks the staff and resources to do the kinds of investigations that were done in the past. Republicans in the Senate will block efforts to provide additional resources.
Democrats will have to dampen expectations.
Second, Democrats need to find some way of chilling demands for impeachment without angering their base too much. While Trump certainly deserves impeachment, the chances of a Senate conviction are zero and the effort will waste a lot of time and energy. Anyway, removing Trump would just make Pence president. From a policy point of view, nothing will change.
Third, Democrats should have the Joint Committee on Taxation obtain all of Trump’s tax returns and review them thoroughly. It already has the legal authority to do this. But Democrats should not expect a smoking gun. The returns themselves may say little without also seeing the supporting data and documentation that the IRS itself only sees in an audit. Also, privacy laws will still apply and it will take much time for the returns to be analyzed.
Fourth, Democrats can make a down payment on restoring funds for programs that have been slashed by the GOP. But Republican control of the Senate will limit what can be done and Trump has made clear that he has no fear of the political consequences of a government shutdown resulting from vetoing appropriations bills.
The biggest problem Democrats will have is dealing with the budgetary time bomb Republicans have planted with their tax cut.
Fifth, Democrats can do a lot to put meat on the bones of an agenda their nominee can run on in 2020. Hearings must be held, speeches given and reports written detailing potentially popular Democratic ideas such as Medicare for All. Democrats must remember that they will be held to a much higher standard by the media than Republicans have. Democrats are the party of responsibility and must bear a burden for that.
The biggest problem I foresee Democrats having is dealing with the budgetary time bomb that Republicans have planted with their tax cut. It is absolutely guaranteed that Republican hypocrites and media scolds will demand immediate action on the deficit as soon as the new Congress convenes. Enough Democrats and their Wall Street contributors will agree to force action.
Republicans will insist, of course, that 100 percent of deficit reduction be done on the spending side. Their long-term goal has always been to force Democrats to cut programs like Social Security and Medicare so that Republicans don’t bear the blame.
Republicans will also insist that, even with the tax cut, revenues are more than adequate to fund the federal government. They will ignore the fact that the major driver of long-term spending is interest on the debt resulting from tax cuts with no reduction in spending, wars without end and trillions for militarily dubious high-tech weapons systems and unfunded Republican programs like Medicare Part D.
Needless to say, tax increases will be off the table. The only person Republicans fear as much as Trump is Grover Norquist, whose no tax pledge guarantees defeat for any Republican who supports even the most modest tax increase. (Apparently, tariffs are okay.) Any tax increases Democrats manage to achieve will be small and grossly inadequate to our fiscal needs.
It is likely that macroeconomic conditions will also force Democrats into the trench warfare of deficit reduction. Inflation has been well-behaved for a long time, but Republicans just added a huge dose of fiscal stimulus to an economy that was already running on all cylinders. Historically, this has been a recipe for inflation. Moreover, the Federal Reserve will continue raising interest rates. While this should theoretically dampen inflation, it will nevertheless make the deficit a more salient political issue. It will be easy for politicians to sell Americans on the idea that interest rates are rising due to deficits rather than Fed policy.
Democrats will find themselves between a rock and a hard place – between demands for action from their base that cannot be fulfilled and enormous pressure to reduce deficits without any help from tax policy.
It is possible that Democrats may keep their base under control with some symbolic victories – getting Trump’s tax returns would be a big one. Robert Mueller’s investigation will continue and presumably deliver more indictments and convictions. Hearings will provide forums for Democrats to highlight Republican corruption and the deleterious effects of their policies. By the end of next year all eyes will turn to the run for the White House. This should give Democrats the leeway to do little substantively without depressing their base too much. The real action will come in 2021.
* Bruce Bartlett (@brucebartlett) worked in Congress from 1976 to 1984, at the White House from 1987 to 1988, and at the Treasury Department from 1988 to 1993. His latest book is The Truth Matters: A Citizen’s Guide to Separating Facts and Lies and Stopping Fake News in Its Tracks https://www.amazon.com/Truth-Matters-Citizens-Separating-Stopping/dp/0399581162/.
It was big news last week when Ways and Means Committee Chairman Kevin Brady (R-TX) let it be known that the House would debate and presumably pass another tax cut this September.
The Brady plan includes three separate bills that will (1) extend the individual tax cuts currently set to expire in 2025, (2) provide tax incentives for research and development and (3) enhance the tax code’s incentives to save for retirement.
Passing a tax cut just before the election sounds like every incumbent’s legislative dream come true.
But in spite of their obvious surface-level political attractiveness, it’s very likely that none of the three bills will be enacted this year.
The reason is something that congressional Republicans decided to do…or in this case not do…months ago: adopt a budget resolution.
As I explained in this post back in February, House Speaker Paul Ryan (R-WI) and Senate Majority Leader Mitch McConnell decided at the start of this year that there would be no fiscal 2019 budget resolution so that there would be no politically embarrassing votes for Republicans on the trillion-dollar budget deficits resulting from last year’s tax bill. No budget resolution meant no reconciliation and no reconciliation meant that 60 votes would be required on tax legislation. Even on a pre-election tax cut, that meant a filibuster would be probable.
This almost certainly explains the reluctance expressed last week by many Senate Republicans about taking up any tax cut that might pass the House this fall.
(In case you’re wondering how Senate Democrats can vote against a tax cut just before the election, I was told by multiple sources this week that Democrats will offer their own tax cut proposal that Republicans will vote against. That will given Democrats political license to vote against the GOP’s plan.)
So why is Brady, who must know that his bills are doomed from the start in the Senate, still planning to move ahead?
Brady is using his new tax cut scheme to solicit campaign contributions from corporations.
It has nothing to do with taxes, fiscal policy or economics: Brady is using his new tax cut scheme to solicit campaign contributions from corporations and industries who want something in these bills.
The best way for corporations to get Brady to pay attention will be to contribute to him, the GOP’s campaign arms, other Ways and Means Republicans, the leadership political action committees and the Trump reelection effort, and to do it before the election.
Hence Brady’s rush to do something now even if it is already set up to fail.
Brady and the rest of the House GOP will be looking for first-time or increased campaign contributions/political tribute from three categories of tax cut supplicants:
- The companies, industries and groups that didn’t get anything in the tax cut enacted last December.
- The companies, industries and groups that didn’t get all they wanted in the tax cut enacted last December.
- The companies, industries and groups that need a change from what they got last December (a so-called “technical correction’) because that bill was drafted improperly.
There are three reasons why, no matter how unlikely these bills are to be enacted, few in these three categories will be able to ignore the Brady plan.
First, kowtowing to the chairman of the House Ways and Means Committee is always a good thing to do.
Second, even if the bills aren’t enacted, having the provision you want included this time will make it much easier to get it included the next time a tax cut is considered, even if Democrats gain the majority in the election.
Third, there’s always the chance that legislative lightning will strike and one or more of the three Brady bills will be enacted after all.
The spin surrounding the Brady bills will have less to do with the proposed corporate tax changes and will instead focus on extending the individual tax cuts.
In reality, however, given that the actual purpose of the Brady plan is to obtain corporate campaign contributions, extending the individual tax cuts will be the least important of the three tax cut proposals.
It will also provide the GOP with the political cover to get what it really wants.