When the US Congress returns to work on April 24, it will have barely a handful of working days to agree on a budget for the remainder of the current fiscal year through September 30—and meanwhile address the breakdown of President Trump’s agenda after the withdrawal of the proposed American health Care Act (the “AHCA”) by the Republican leadership of the House of Representatives with the advice and consent of the President.
Essentially, coming home from their town hall meetings (or non-meetings) over the Easter recess, Congress will approach the end of President Trump’s first 100 days in office with only two clear accomplishments in terms of the Trump Congressional agenda – allowing the states to defund Planned Parenthood by removing an Obama regulation prohibiting such actions, and the Senate’s approval of the nomination of Judge Neil Gorsuch to the United States Supreme Court, where he now sits. Moreover, as it happens, the GOP failure to “repeal and replace” Obamacare as promised also complicates the effort to move on to the next key promises in the Trump agenda: namely, enactment of a major income tax reform and reduction bill: repatriation at a reduced tax rate the trillions in US corporate earnings now sheltered overseas; authorizing and paying for – at least initially – construction of a border wall along the US-Mexican border; and initiation of a job-creating infrastructure stimulus plan dependent at least to some degree on Federal spending.
Spending – or not spending, as the case may be – thus will become a dominant issue in terms of the progress of the President’s agenda. The legislation necessary to extend the current budget arrangement for this fiscal year, or some modified version of it, until September 30 will become the prime focus between Monday, April 24 and Friday, April 28, when the prospect of a government shutdown again looms for the nation’s economic and political direction.
Many in the GOP will want to change the terms of the budget deal to align the remainder of fiscal 2017 more directly with the agenda President Trump got elected on: defunding Planned Parenthood (which at least for a year was part of the ill-fated AHCA), funding the work on the Mexican border wall, and ending the subsidies to insurance companies participating in the health insurance exchanges under Obamacare to reduce their losses due to the fact that too few healthy persons signed up for coverage to make the policies offered attractively priced either for the companies or their customers. In terms of this last issue the GOP in Congress has argued that these subsidies were proved by president Obama without clear Congressional authorities and are therefore unconstitutional – an argument underlying President Trump’s threat to stop right now paying those subsidies to insurers to force the immediate collapse of the exchanges (because the insurers pull out) and thus force Democrats to the bargaining table to join in supporting a new health care plan replacing Obamacare.
Democrats have meanwhile signaled they could be willing potentially to force a government shutdown (i.e., not supply any votes needed for passage the budget extension) if the extension includes either a cut-off of Federal Planned Parenthood funding or funding for building a border wall – or does not include continued authorization and funding for the subsidies to insurance companies required for operation of the Obamacare insurance exchanges at the state and Federal levels.
Additionally, there conceivably could be efforts by the House Freedom Caucus or other far-right groups to attach a full repeal of Obamacare – including the protections relating to pre-existing conditions and keeping children on parental policies until age 26 – to the budget extension, at least in the House of Representatives. Other Republicans, especially in the Senate like John McCain, are anxious to increase military funding from current levels for the balance of this fiscal year, an argument that could be enhanced by the increase in potential for hostilities involving America in the Koreas and Syria.
At the same time, there is consternation within the business and Wall street community that the failure to date of any new health care policy has vastly complicated the path to tax reduction and reform because some of the savings needed to offset rate cuts were embedded in the AHCA and now can’t be counted, which makes it harder to bring in a “revenue neutral” bill that is required to allow passage by 51 votes and not 60 (i.e., meaning some Democrats on board) in the Senate – otherwise, the only path to simple majority passage is to make the tax cuts temporary in the sense that they will expire in ten years, just as the famous Bush tax cuts did, giving President Obama his opening to impose higher taxes on the rich.
Tax reform is already difficult enough with respect to three key issues: (i) will the tax bill cover both corporate and personal income taxes (it practically must if it drastically cuts corporate rates only, because small business owners often qualify to incorporate and pass through their business income); (ii) the whole question of using a “border adjustment” to apply VAT-like principals to tax imports in order to provide a Treasury windfall to achieve ‘revenue neutrality’ in the face of steep rate cuts and minimize the hit to popular personal deductions like mortgage interest, charitable contributions or state and local taxes – again to achieve revenue neutrality.
All these consideration, plus the latest ideas from the House GOP leadership to attract enough votes to an “AHCA 2.0” from the Freedom Caucus and other conservatives – without losing moderates or highly skeptical GOP Senators (especially those up for re-election in 2018) – so that the bill would eventually pass both Houses and thus open the door for action on the tax cut and infrastructure bills.
In this context, while they old device of buying votes with “’earmarks’’ – the specially tailored to the political needs of particular members (recall the “bridge to nowhere” and even the “Cornhusker kickback”) — is no longer available under current rules, there could be pressure on leadership to load up the budget extension resolution with provisions like Planned Parenthood defunding in order to secure votes for AHCA 2.0 or even tax cut legislation, vastly complicating the path to 218 votes in the House.
Adding a Federal Planned Parenthood or “sanctuary cities” funding cut-off, to appease far-right Republicans, or even a full-on Obamacare repeal, to the budget extension would assure that Nancy Pelosi could hold her Democrats off from providing any votes to save Speaker Ryan from dependence on a few recalcitrant Republicans and risk yet another government shutdown before it the issue even reaches the Senate.
In that event, once again, it would take major stock market sell-off on May Day to bring Congress to its senses and a “clean” budget extension through September. But do investors really need to get through that again while they are worrying more about whether who is more likely to shoot first: Kim Jung-un or DJT?
President Trump indeed may even wind up playing the role of the adult in the room on the shutdown issue. On April 28, the same day as the government runs out of budget money – the Commerce Department will release the first public estimate of GDP for the first quarter of 2017 (being the first quarter also of the Trump Presidency). The Federal Reserve Bank of Atlanta’s latest prediction is an anemic 0.5%, and blue chip economists’ consensus is only a point higher – both far below the 3-4% growth Trump and his officials have targeted. Trump can for lone last time blame such poor performance on Obama hangover, and would no doubt use it to ratchet up his push to get some form of AHCA done and move quickly on tax cuts and infrastructure to stimulate the weak economy, which has also recently disappointed in terms of retail and auto sales, productivity, and hiring.
In that context, the last thing the President needs is a government shutdown because his own Party can’t get a budget extension passed because of intra-Party squabbles over the border Wall, Planned Parenthood or even the opportunity to immediately cut the financial legs out from under Obamacare exchanges. The art of the deal often is all about timing.