Francis Chung/POLITICO via AP Images
House Speaker Mike Johnson (R-LA), flanked by House Majority Whip Tom Emmer (R-MN) and House Majority Leader Steve Scalise (R-LA), speaks during a press conference at Republican National Committee headquarters on Capitol Hill, December 4, 2024.
Two years ago, it took a week for House Republicans just to elect a Speaker. Throughout the congressional session, more often than not Democrats had to provide votes to pass the most basic legislation. The House has a slightly smaller majority going into the next Congress, and because of early defections to Donald Trump’s cabinet, in the first couple of months they will not be able to lose a single vote if they want to pass anything.
This does not seem like the optimal environment for going big legislatively. But that’s what Republicans are preparing, even as consensus on how to achieve that has not been found.
We already know that Republicans want to extend the Trump tax cuts, and the conventional wisdom was that they would have little trouble doing so. But the strains of using the budget reconciliation process (which supersedes a Senate filibuster, but also requires that everything must be budget-neutral after the first ten years), Trump’s promises of more and more tax cuts throughout the campaign, and differences within the caucus have made reaching a deal a knottier question. At the same time, Republicans want to carry forward the momentum of the election and make an early splash.
So a new strategy has emerged: two reconciliation bills. As the incoming Senate majority leader John Thune (R-SD) has laid out, there would be a reconciliation bill in the first 30 days of the new congressional session beginning January 3, focused primarily on funding border security measures, but also seemingly raising the military budget. (That will come as news to Elon Musk, who has been playing footsie with cutting it.) This would be offset by some targeted eliminations of tax credit programs from the Inflation Reduction Act (the biggest would likely be rolling back the $7,500 electric-vehicle rebate), and maybe opening public lands to oil and gas leasing, which you could say raises money.
This wouldn’t be that big a bill—no more than $85 billion according to one Republican senator—but the concept grants legislative buy-in for the looming border crackdown, and would provide money Trump could draw from for mass deportations, which he wants to do immediately. In addition, it would give space for conversations about the tax package, to be accomplished in a second reconciliation bill before the end of 2025, when the Trump tax cuts expire.
There is precedent from just four years ago: Democrats used reconciliation to pass the American Rescue Plan in the first couple of months of Joe Biden’s term, then debated and (eventually) passed the Inflation Reduction Act with a second reconciliation bill. Republicans have the same ability to use fiscal year 2025 reconciliation on a border/energy package, and fiscal year 2026 reconciliation on taxes.
But House Republicans don’t agree with the strategy. “The idea that we will do a small reconciliation at the beginning that does energy and immigration and defense, and a second will be tax, is very foolish,” said Rep. Jason Smith (R-MO), chair of the House Ways and Means Committee (aka the tax-writing committee), at a CNBC summit. “It breeds failure, in my opinion.” The phrase “House Republicans don’t agree” is likely to be a familiar one next year, whether referring to disagreement with their counterparts in the Senate or with each other.
With the tight margins in the House, absences, retirements, or deaths could be the difference between majority support and a lack of votes.
House Republicans have two concerns. First, getting one big package over the line with their tiny majority will be a heavy enough lift, let alone two. Second, jettisoning border money from the tax package will make it harder to get it through; you can woo wayward conservatives who might not like the compromises in there by promising border cash. “The border has to be in the tax deal because they need the votes,” said Rob Weissman, co-president of Public Citizen. That’s true on the other side of the ledger, too: The budget-busting nature of the tax promises means that you’d need those offsets in the tax bill to satisfy fiscal conservatives.
But throwing everything into one bill just complicates the enormous number of issues that must be addressed. As my colleague Bob Kuttner has laid out, Trump has made as much as $7 trillion in tax cut promises, and there isn’t much around in the way of obvious offsets to fill that gap, even though many in the caucus want the package to not increase the deficit. That much actual savings would require cutting deep into broadly popular programs. And Republicans are just beginning to integrate the $3 trillion or so in tax cut promises Trump made on the campaign trail, cutting taxes on tips, Social Security benefits, overtime pay, expats abroad, and much more.
On the details, some Republicans want to keep parts of the IRA intact and some don’t. Some want to raise tariffs legislatively as an offset and some don’t. Some are demanding a repeal of the cap on state and local tax deductions and some see that as too expensive. Some want to deal with health care in that tax bill and some don’t. Some want to cut Medicaid and food stamps and some don’t. Some want a bigger Child Tax Credit and some don’t. Some actually want to raise taxes on corporations and some don’t. All of them, seemingly, would gladly cut Planned Parenthood and PBS, but that saves the government pennies. These differences could be ironed out, but almost everyone must agree on something in order for Republicans to succeed. That needle will be very hard to thread.
Republicans got another hit this week when the Congressional Budget Office estimated that restoring the Trump tax cuts would reduce overall gross domestic product. Shrinking the economy means lower tax revenue, at odds with the perennial claim that cutting taxes increases money back to the government because of hyper-charging growth.
All of this has to be figured out in advance of passing a bill. The way budget reconciliation works is that Congress sets a number of parameters in a budget resolution, which determines how much can be spent in the budget window. The details come later, but the numbers are really the whole thing, because they constrain what Congress can do.
So figuring all that out is a hassle in the best of times. Figuring that out in the space of a few months is a recipe for a snarling fight. When Democrats tried a two-step process, putting off the “Build Back Better” side of the agenda to a second reconciliation bill, it took them more than a year to nail down the IRA. Republicans don’t have that kind of time. They would have to get a second reconciliation bill, with all the tax changes, done between October 1 and December 31, 2025. Anything beyond that and the tax cuts expire.
That puts Republicans into a very tight window, where the future is unknowable. With the tight margins in the House, absences, retirements, or deaths could be the difference between majority support and a lack of votes. And it’s not hard to envision Congress simply bickering right through that deadline.
Republicans could make retroactive changes to the tax code in 2026, but it’s more difficult. For one thing, some Republicans want to characterize extending the tax cuts as not affecting the deficit at all, because it just continues current law. If the tax cuts expire, that rhetorical tactic (which may become an alternative way Republicans score the bill) is no longer available.
So, even though allowing the Trump tax cuts to vanish would be a fate worse than death to pretty much every Republican, there’s a nonzero chance that incompetence, argument for argument’s sake, and an inability to prioritize leads to that happening.
House Republicans have such thin margins that the idea of getting the tax knots untangled early is unlikely. So a one-bill approach probably means nothing gets done legislatively for months, which creates its own sort of momentum, or lack thereof. Members get angrier, recriminations build, ultimatums are made. It’s like a sports team on a losing streak; the mood gradually darkens.
At the same time, House Republicans are warning not to break taxes from the border, recognizing that the border changes will keep members on the tax bill. With the two-step approach, at least you put a win on the board early. But it might come at the expense of getting the tax package, the actual priority, on the board later.
Republicans have given no real indication that they have the capacity to govern. There are no “adults in the room” who have the capacity to concentrate minds and put the numbers on the table that bring everyone together. The working assumption is that, somehow, it’ll all work out. Republicans want to secure the border, they want tax cuts, and they’ll do what they have to do to get there. That’s the theory.
Of course, Republicans all wanted to repeal the Affordable Care Act in 2017 too. Or so we thought.
