GOP’s ambitious budget plan faces internal divisions

Republican senators warn incoming Senate Majority Leader John Thune’s (R-S.D.) ambitious proposal to tackle President-elect Trump’s agenda faces an array of disagreements within their party over strategy and policy.

Republican senators are broadly amenable to moving quickly on a budget reconciliation bill that would provide funding to complete construction of the U.S.-Mexico border wall, to increase the number of agents employed by Customs and Border Protection and to better absorb the flow of migrants who make it across the border.

And there’s broad Republican support for including legislation to boost domestic energy protection in the first budget bill.

But a proposal to convert a large chunk of discretionary defense spending into mandatory spending so that it can be included in the budget reconciliation package is expected to meet resistance from some members of the Appropriations Committee as well as fiscal conservatives who are worried about the impact on the deficit.

“I’d have to take a look at that. Traditionally defense has had very little mandatory funding. There’s no doubt that there’s been a huge increase in mandatory spending that has been responsible for the enormous increase in our deficit,” incoming Senate Appropriations Committee Chair Susan Collins (R-Maine) said after the Senate Republican retreat at the Library of Congress, where Thune presented his plan.

“When you move spending from discretionary to mandatory you circumvent the review that the Appropriations Committee does, and I think that’s generally speaking a problem,” she said.

Including a “plus-up” in defense spending in the budget reconciliation package could also encounter opposition from fiscal conservatives, especially House conservatives who want to rein in the Pentagon’s budget.

“I can guarantee you they don’t have the votes for that. They have a tiny margin in the House and the Senate and there will certainly be some Republicans that don’t want to move the biggest expenditure of federal funds into the mandatory category,” Sen. Brian Schatz (D-Hawaii), a member of the Appropriations panel, said of shifting a portion of defense spending into the mandatory category.

There’s also disagreement among Republicans over how large the first budget reconciliation package should be, with some GOP senators pushing to add more to it beyond the border security, energy and defense proposals Thune floated at the Tuesday retreat.

Some Senate conservatives want to stretch the first reconciliation package beyond spending on the border wall, Customs and Border Protection and Immigration and Customs Enforcement to include some of the policy reforms included in the House-passed Secure the Border Act.

While the Senate’s Byrd rule states that legislation included in a budget reconciliation package must have a nontangential impact on spending, revenues and the deficit, some conservatives argue that tightening asylum law or other policy reforms to reduce the flow of migrants could have a major impact on those financial concerns.

A person familiar with Tuesday’s discussion said that Senate Republicans will test the limits of the budget reconciliation rules, noting that Democrats stretched the bounds of budget reconciliation by dramatically increasing spending in the 2021 American Rescue Plan, which cost $1.9 trillion.

Other Senate Republicans want to move aggressively to “de-weaponize” the federal government and to significantly reduce federal spending, which totaled a whopping $6.1 trillion in 2023.

“There are a million ways this could play out,” said one Republican senator.

The lawmaker said the first reconciliation package “would almost certainly need to include more stuff” than border security and defense spending sprinkled with reforms to expand energy production.

Senate Republicans are debating how far to go in reshaping the federal government and whether to tackle that ambitious project in the first reconciliation package or the second one, which would be focused on extending the expiring Trump-era tax cuts.

A person familiar with what was discussed at Tuesday’s retreat said senators haven’t reached agreement on whether to push for deep federal spending cuts and civil service reforms in the first or second budget reconciliation packages.

The second, tax cut-focused budget reconciliation package faces its own challenges.

The biggest challenge is the sheer complexity of the bill, which would add an estimated $4.6 trillion to the federal deficit over 10 years compared to current law, under which the Trump tax cuts would expire at the end of next year.

Incoming Senate Finance Committee Chair Mike Crapo (R-Idaho) has called for Republicans to take a novel approach to scoring the cost of the bill by calculating its fiscal impact based on “current policy,” which would factor the current tax rates into the budgetary baseline.

Some House Republicans, however, want to score the extension of the Trump tax based on “current law,” which assumes those tax breaks will expire at the end of next year.

Calculating the cost of next year’s tax package on a “current law” baseline would produce a budgetary projection that would add close to $5 trillion to the deficit over the next decade.

Some House Republican leaders fear that would give fiscal conservatives in their conference sticker shock. Some of them have floated the idea of a four-year extension of the Trump tax cuts to reduce the projected cost of the bill substantially.

And Republican lawmakers are divided over whether to expand next year’s tax package beyond the expiring provisions of the 2017 Tax Cuts and Jobs Act.

Trump’s allies in the Senate Republican Conference want to include Trump’s campaign proposals to shield tipped income for service workers and Social Security benefits from federal taxation — proposals that would cost hundreds of billions of dollars.

Exempting tipped income from taxes could cost between $100 billion and $200 billion over 10 years, while shielding Social Security benefits from taxes would increase deficits by $1.6 trillion to $1.8 trillion over 10 years, according to an analysis by the Committee for a Responsible Federal Budget.

Republican senators who attended Tuesday’s retreat said the discussions about how to structure the two reconciliation packages for next year are still in the preliminary stages.

“There was a broad discussion about all the things that we want to accomplish and our opportunities to do it and we plan to get it all done,” said incoming Senate Republican Whip John Barrasso (R-Wyo.).

Trump called into the Senate GOP retreat Tuesday to remind lawmakers of his victories in all seven battleground states last month and urge them to act with that mandate in mind.

“He was thrilled with his victory,” Barrasso said of Trump’s comments to the conference. “We have a mandate and an opportunity to do the sorts of things that we campaigned upon in terms of lowering prices, in terms of the border, in terms of getting America back on track.”

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