Late this afternoon the Senate GOP released its new proposed budget resolution, which leaders expect to begin voting on and debating tomorrow. This afternoon, President Trump affirmed his support for the Senate plan, which is a significant departure from its original “skinny” budget resolution. The Senate GOP one-pager can be found here for your reference, and the Resolution can be accessed here.
The Senate’s budget resolution does not in and of itself change law, but is necessary for the purpose of arming the legislative process that follows in reconciliation. Reconciliation allows the Senate to pass certain limited legislation on a simple majority vote, with no filibuster and limited debate. Senate action this week is best viewed as moving the process forward, and will need to be reciprocated by the House for the legislative process to begin.
In order to move forward, the Senate will again debate the budget for up to 50 hours (each side can yield back as much of its 25 hours as it likes) followed by a “vote-a-rama” which will probably begin Friday (and could run into Saturday), during which time Democrats will offer dozens of non-binding messaging amendments on many different political issues (and the GOP will likely offer some of its own as well).
If adopted, the Senate budget resolution instructions would provide for:
- $1.5 trillion tax cut instruction under a current policy baseline (more on that below) to ensure the TCJA tax rates for individuals don’t go up, while providing additional space for additional tax policy priorities
- $175 billion for border security
- $150 billion in additional defense spending
- Provides up to a $5T debt limit hike, expected to last into 2027 (past the 2026 election)
- Increased oil and gas exploration on public lands
- For procedural flexibility, low minimum targets for Senate committees to achieve deficit reduction, with the expectation that those targets will be greatly exceeded
If the Senate is successful in moving the budget this week, all eyes will turn to the House, as the House and Senate both must agree to identical Budget Resolutions in order for reconciliation to become a live legislative exercise. While the Senate’s budget resolution adds in Senate reconciliation instructions, it does not change the House’s instructions, leaving in place different House and Senate targets for tax cuts, spending cuts, and debt limit. Those differences will have to be bridged over the course of the legislative process, including:
- Spending cuts: The House mandates much larger cuts than the Senate ($1.5 trillion minimum vs. $5 billion minimum); while the Senate expects to greatly exceed its minimum targets, bridging the divide between what House deficit hawks require and what can realistically pass the Senate will be a major challenge. For example, much of the House’s proposed $1.5T spending cut presumably comes from Medicaid, and that likely won’t have the support necessary to pass the House or Senate.
- Tax instruction: As detailed below, the Senate Finance Committee is provided more room for tax cuts within the ten-year budget window as compared to House Ways & Means, potentially reducing the need for tax offsets even as they seek to accommodate President Trump’s additional policy priorities.
- Debt limit: The House has a $4 trillion notional debt limit increase while the Senate’s resolution allows the debt limit to be raised by $5T – the larger number is likely necessary to ensure the debt limit will last into 2027.
- Baseline: The House uses a traditional current law baseline; the Senate will try to use a current policy baseline to give itself room to make the tax cuts “permanent in law” rather than subject to automatic expiration.
Senate Tax Cut: Since the Senate uses a current policy baseline, its $1.5T/10 years net tax cut instruction looks much smaller than the House’s ~$4 trillion marker. However, using the current policy baseline represents a roughly $3.8 billion tax cut as compared to current law, meaning that when comparing apples to apples, the Senate tax cut ceiling is materially higher than the House’s. If the House ultimately agrees to utilize that additional tax cut running room, it will take some pressure off the need for offsets to accomplish what members want to accomplish: permanent extensions of the individual tax cuts from TCJA; full R & D expensing, greater interest deductibility, and bonus depreciation; and the desired Trump add-ons including no taxes on tipped income, among other items.
Outlook/Analysis
Today’s Senate action has long been in the works and represents a step forward towards potential major tax and spending legislation this summer. It also begins to narrow some differences with the House by providing for one major reconciliation bill that includes debt limit, for example.
If the Senate successfully moves its budget this week, it places pressure on the House to reciprocate next week before leaving town for the two-week Easter break. If the House does so, the legislative process could begin in earnest in May, with the goal of enacting major legislation into law later this summer. However, for that to happen, significant differences between the House and Senate will have to be worked out through the legislative process.
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