President Donald Trump reached across the aisle on Wednesday and agreed to a deal with Democratic leaders to extend the debt ceiling, fund the government, and provide billions of funds for Hurricane Harvey relief and recovery.
But though the deal avoided a series of looming deadlines with potentially disastrous consequences, it may have also scrambled Trump’s next big economic policy push: tax reform.
The White House is focused on what Trump called “the biggest tax cut in history” and wants legislation passed by the end of the year. But the deal, combined with other extraneous factors, could complicate those plans.
The short-term deal leaves little room for error to complete a tax-code overhaul within Trump’s desired timeframe. As Rep. Mark Meadows, the head of the conservative House Freedom Caucus, said at a Bloomberg event on Thursday, the “the enemy is time.”
Even before the deal, the calendar was unforgiving. Now, December will bring a fresh funding fight along with a slew of other battles, including whether to extend taxes under the Affordable Care Act and codifying the Deferred Action fo Childhood Arrivals (DACA) immigration program.
With the formal tax plan not expected until the end of September, that would leave a little less than two months for the GOP to hash out differences and push the bill through before other items swallow the agenda. Rather than “clearing the deck” for tax reform, as the White House argued, it appears to have made the end of the year even more crowded.
Additionally, Republicans in Congress must agree to a budget to complete tax reform through the process of budget reconciliation.
Budget reconciliation allows the Senate to pass bills that would lower the deficit with a simply majority, rather than being subject to a filibuster. But reconciliation must be accompanied by an actual budget — along with a second bill that establishes the rules for reconciliation under that budget.
As it stands, reconciliation rules on the fiscal year 2017 budget are scheduled to expire at the end of September. So the GOP must pass a fiscal year 2018 budget for tax reform.
The budget itself would be subject to a 60-vote threshold in the Senate. That means Republicans will need to get Democrats on board, potentially requiring policy concessions, said David Kelly, chief global strategist at JPMorgan Funds.
Kelly wrote in a note to clients Monday:
“As a practical matter, by Senate rules, (a) you need a budget reconciliation bill to pass tax reform with 51 votes, (b) you can’t get to a budget reconciliation bill without passing a 2018 budget, and (c) you can’t pass a 2018 budget without cooperation from Democrats who would happily filibuster a budget not to their liking, knowing that the resulting government shutdown would be blamed on the Republicans but wouldn’t have the devastating financial consequences of a debt default.”
More conservative-leaning House members, such as those in the Freedom Caucus, are wary of passing any budget with concessions to Democrats before seeing the finalised version of the tax reform bill, according to Bloomberg’s Sahil Kapur.
However, there could be one silver lining for Republicans amid the chaos: the pressure for a win.
As Issac Boltansky and Lukas Davaz, political analysts at the research firm Compass Point, wrote on Monday, it the GOP needs a win — and tax reform could be its only opportunity on the horizon.
“Our sense is that this episode could compel some modicum of cohesion among congressional Republicans as the conversation shifts toward tax reform,” they said. “Simply put, we believe President Trump’s willingness to throw the GOP under the bus could drive some near-term party unity as congressional Republicans refocus on tax reform.”
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