Congressional Republicans have set conflicting goals that will make negotiating a budget reconciliation package for enacting President Trump’s agenda a difficult task.
The House and Senate finally adopted a unified budget blueprint after two months of back and forth over how much spending and tax cuts to instruct their committees to find for the package.
Now, Republicans are under pressure to negotiate more quickly through their differences as they decide what to include in the legislation committees plan to release in the coming weeks.
Sweeping tax and spending cuts will be among the most difficult provisions to negotiate. Republicans are also planning to include a debt limit increase, energy policy changes and funding for border security, immigration enforcement and defense.
Some of the commitments made to win fiscal hawks’ support on the budget conflict with goals more centrist Republicans have for the package, setting up clashes in several areas.
Cutting Medicaid
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Perhaps the most divisive issue is determining how much savings Republicans can find from Medicaid.
Mr. Trump and Republicans have said they plan to root out waste, fraud and abuse in Medicaid while protecting benefits. But the details of how to overhaul Medicaid are more complicated than that.
The budget instructs the House Energy and Commerce Committee to find $880 billion in savings, the bulk of which must come from Medicaid because there are not enough other mandatory spending programs within the panel’s jurisdiction.
House Freedom Caucus members Eric Burlison of Missouri, Chip Roy of Texas and Andy Harris of Maryland outlined some of their ideas for Medicaid in a Fox News op-ed last month.
“Reimplementing Clinton-era work requirements alone would save roughly $120 billion over 10 years and put more workers back in our economy,” they said. “Site neutrality could save over $471 billion. Normalizing the federal reimbursement rate for the expansion population under Medicaid would save nearly $600 billion. You could even take Biden’s advice and eliminate Medicaid provider taxes that he called a scam and save the taxpayer $612 billion over 10 years.”
The changes could even be phased in and save taxpayers hundreds of billions “without cutting anyone’s benefits,” the Freedom Caucus members said.
The work requirements proposal is widely supported among Republicans. But ideas like reducing the federal reimbursement rate for the expansion population have been viewed by some Republicans as a backdoor way of cutting benefits since states will have to either make up the gap or reduce their Medicaid offerings.
Centrist Republicans have said they will not support any Medicaid changes that lead to cuts for “eligible beneficiaries” like single mothers, children and people with disabilities.
They’re fine with making able-bodied adults work to receive benefits, implementing a citizenship verification requirement to ensure Medicaid dollars are not being spent on illegal immigrants and creating mechanisms to limit fraud.
“We’re talking about speeding up the process for eligibility verification,” Rep. Mike Lawler, New York Republican, said at a CNN town hall. “Joe Biden lessened it to a year. We want to speed it up to every quarter to make sure that someone who is on Medicaid is actually eligible for it.”
Those areas where Republicans agree, however, are unlikely to save enough from Medicaid to get them close to their goal of a minimum $1.5 trillion in spending cuts.
Fiscal hawks will seek more — and moderates will likely push back.
Repealing clean energy credits
Another area where fiscal hawks are clashing with other Republicans is in their desire to repeal clean energy tax credits from the Inflation Reduction Act, a reconciliation package Democrats enacted during President Biden’s tenure.
The White House reportedly said in a written commitment to fiscal hawks that the IRA credits “will be repealed to the fullest extent possible.”
But other Republicans are against such a sweeping approach to rolling back the IRA.
“A wholesale repeal, or the termination of certain individual credits, would create uncertainty, jeopardizing capital allocation, long-term project planning, and job creation in the energy sector and across our broader economy,” four Senate Republicans wrote in an April 9 letter to Majority Leader John Thune of South Dakota.
Sen. Lisa Murkowski led the letter and it was signed by Sens. John R. Curtis of Utah, Thom Tillis of North Carolina and Jerry Moran of Kansas. Together they form a voting bloc big enough to derail the bill.
The senators did not say which credits they want to preserve, instead urging a “targeted, pragmatic approach” that considers whether repealing certain credits will harm domestic manufacturing and raise energy bills for consumers.
Last month, New York Rep. Andrew R. Garbarino led 20 other House Republicans in a letter with a similar message about ensuring changes to energy tax credits do not inhibit private sector investments in domestic manufacturing or raise utility costs.
Like the senators, the House Republicans did not make specific demands about credits worth preserving but showed they are a significant voting bloc that can’t be ignored.
“Both our constituencies and the energy industry alike remain concerned about disruptive changes to our nation’s energy tax structure,” they said.
One IRA credit several Republicans want to keep but maybe rework is the clean fuels production credit. Several members brought it up during a Ways and Means hearing earlier this year on members’ tax priorities, along with other tax incentives that encourage the use of biofuels and sustainable aviation fuels produced in many midwestern states.
Offsetting tax cuts
Republicans plan to use the reconciliation package to extend and expand upon the president’s first-term tax cuts, many of which are set to expire at the end of the year. However, there are internal party disagreements about how much of those costs need to be offset.
The budget both chambers adopted accepts the Senate’s decision to use a “current policy” baseline that does not count the cost of extending tax cuts already in law, which most Republicans say will make it easier to make the 2017 tax cuts permanent.
Some Republicans, like Sen. Bill Cassidy of Louisiana, opposed the use of the current policy baseline, arguing the $3.8 trillion cost of permanently extending the 2017 tax cuts should still be offset in the process.
Mr. Cassidy said he voted for the budget based on a leadership commitment to pay for this bill by a variety of means, whether it is within the reconciliation vehicle or outside of that process, and that he will make sure the end result truly addresses the national debt.
In the House, fiscal hawks received their own leadership commitment that the final bill will be at least deficit neutral after assuming $2.5 trillion in revenue will be generated from the economic growth effects of the package.
“If you don’t end up with the right spending cuts, you’re not going to get tax cuts,” said Rep. Chip Roy, Texas Republican.
He and other fiscal hawks said they received a commitment from House Speaker Mike Johnson, Louisiana Republican, promising the tax cuts would be dialed up or down based on the corresponding spending cuts to preserve deficit neutrality.
That means if the spending cuts fall short, Republicans may not have room to offset all of their tax priorities, which will upset various constituencies.
Several Senate Republicans have said they can’t support a package unless it makes the 2017 tax cuts permanent.
Mr. Trump has demanded the package include new tax cuts, like exemptions for tips and overtime income.
And Republicans from high-tax blue states like New York, New Jersey and California are insisting their support is conditional on lifting the $10,000 cap on state and local taxes that can be deducted from federal income taxes owed.
