Fiscal Policy Afterwards The Mid-Term Elections

      The mid-term elections changed many things inwards Washington.  The total implications volition non hold upwardly apparent until the major players – the House too Senate Republican Caucuses, the House too Senate Democratic Caucuses, too the President – settle on their agendas.  We tin move anticipate a fleck to a greater extent than well-nigh financial policy, however, because existing noun too procedural rules dictate much of the agenda without regard to the wishes of the partisan actors.  This is the minute of 2 posts well-nigh the mid-term elections’ procedural implications. 

     The foremost impacts are existence felt already, fifty-fifty earlier the novel Congress convenes.  Well inwards advance of the election, Congress passed too the President signed 5 of the twelve appropriations bills that together fund the vast bulk of authorities functions.  In a hitting deviation from prior practice, Democrats insisted on moving bills containing their priorities, peculiarly the neb funding the Departments of Labor, Health too Human Services, too Education, apace amongst Republican priorities, such as the Department of Defense.  This changes the stakes inwards a potential authorities shutdown. 

     Of the vii appropriations bills remaining to hold upwardly passed those for Agriculture too for the Departments of Transportation too Housing too Urban Development have got been agreed to privately too are non controversial.  The neb for the Interior Department has been controversial because of non-financial riders that have got been attached to it, largely on environmental matters.  The neb for Financial Services too General Government has been stuck due to battles over raises for federal workers too to a greater extent than or less attempted Republican budget gimmickry.  With the election over, the disputes on these bills seem probable to resolve quickly. 

     That leaves the bills for Homeland Security (controversial because of the President’s proposed edge wall too other immigration-related matters), for Commerce, Justice, too Science (controversial because it contains funding for Robert Mueller’s investigation), too for the Department of State too Foreign Operations (long controversial for many Russia-related reasons too straight off mayhap because of concerns well-nigh Kingdom of Saudi Arabia too our role supporting the slaughter inwards Yemen). 

     The President lately has seemed to signal that he does non await to larn much funding for wall.  His removal of Attorney General Sessions gives the President to a greater extent than straight leverage on the Mueller investigation, potentially removing that number from the appropriations struggle.  If these matters larn resolved, Congress probable tin move avoid a partial authorities shutdown.  The continuing resolution that is funding the agencies nether these vii bills expires Dec 7, too appropriators probable volition involve an extra calendar week to destination up, but unless the President all of a precipitous reverses course of pedagogy appropriations for the electrical flow financial twelvemonth should hold upwardly completed past times the middle of December.  House Republicans are especially eager to destination too travel out town because, as the foremost of the novel Congress approaches, departing Members start to have got to surrender their business office infinite to their newly-elected replacements, making the logistics of existence inwards session progressively to a greater extent than uncomfortable.  The fact that the remaining bills comprehend a mix of Democratic too Republican priorities besides has made a partial shutdown less attractive.

     In the novel year, Congress is probable to confront 4 sets of of import financial issues. 

     First, Congress volition have got to address the nagging occupation of sequestration.  Under the budget legislation congressional Republicans forced President Obama to sign as the toll for raising the debt limit, discretionary appropriations – appropriations for everything other than “direct spending” programs such as Social Security too Medicare – are capped at levels far below historical spending.  Most experts across the political spectrum believe that the federal authorities cannot operate at the sequestration marking without either a serious degradation inwards services that the world expects or a key reduction inwards the federal government’s role. 

     For the past times several years, Congress’s solution has been to enact two-year deals that lift the statutory caps on discretionary spending too offset the costs through cuts inwards entitlements, oftentimes permanent ones.  With one-half of the cap increases going to state of war machine spending, Democrats have got establish these deals distasteful.  But amongst the political difficulty of denying the Defense Department what it desires – either through the regular appropriations procedure or through “emergency” supplemental appropriations – tying these defence increases to domestic ones has seemed the most that could hold upwardly achieved.  After Republicans diverted much of the coin from the foremost of these two-year deals into their ain priorities, Democrats have got taken to pre-negotiating, sometimes inwards considerable detail, how domestic discretionary funding volition hold upwardly allocated earlier agreeing to cap adjustment legislation. 

     Without an increment inwards the discretionary caps, Congress volition have got to cutting appropriations $300 billion below the marking required to buy the farm along electrical flow authorities operations, amongst the reduction theoretically divided well-nigh every bit betwixt defence too non-defense accounts.  No i believes that appropriations bills amongst cuts of that magnitude could exceed Congress.  Yet if Congress does non enact legislation adjusting the caps, the failure to brand those cuts legislatively volition trial inwards a novel sequester – across-the-board budget cutting – to brand upwardly the difference.

     Second, Congress volition have got the regular appropriations process.  Some of the higher-level issues may hold upwardly resolved past times deals made inwards connectedness amongst the cap adjustment legislation.  Some meaning challenges volition remain.  Among these is funding the decennial census.  Historically, the Census Bureau has received steady increases inwards funding leading upwardly to census years to allow it to prepare.  For the most part, that has non been happening.  Without a dramatic infusion of funding, having insufficient enumerators could Pb to a meaning undercount, skewed heavily toward low-income people. 

     The politics of appropriations riders besides volition change.  In recent years, most appropriations riders considered inwards conference committees have got come upwardly from House Republicans, too most have got been rejected as incapable of getting 50 votes inwards the Senate.  With Democrats straight off able too motivated to advise numerous riders of their ain to constrain the Administration, it is unclear whether conference committees volition buy the farm along to insist on “clean” bills or whether the 2 parties volition merchandise riders amongst i another.

     Third, Congress volition involve to lift the debt limit.  With command of Congress straight off divided, too amongst polls suggesting that the electorate is well-aware of the 2017 taxation law’s role inwards increasing the deficit, Republicans seem to have got picayune prospect of blaming Democrats successfully for a crisis over failure to lift the limit.  Democrats have got to a greater extent than oftentimes than non supported build clean increases to the debt boundary too seem to have got picayune leverage to extract more.  Indeed, straight off that House Republicans are inwards the minority too experience insulated from blame, they seem probable to vote “no” en masse to strength as many vulnerable Democrats as possible to vote for the increase. 

     Finally, despite losing the House, Republicans are probable to seek to set taxation cuts dorsum on the agenda.  They have got been agitating for technical corrections to the hastily-drafted Dec 2017 taxation bill.  Democrats, of course, have got been seeking technical corrections to the hastily-drafted Affordable Care Act for 8 years now, amongst Republicans refusing to address fifty-fifty the smallest glitches.  Whether a “technicals for technicals” bargain is possible probable volition depend on the financial touching on of each proposed parcel as good as on whether Democrats believe the Administration volition faithfully deport out whatsoever wellness attention technical amendments. 

     Republicans besides volition advise legislation to brand the “middle class” portions of the 2017 taxation neb permanent.  (To comply amongst budget procedure rules forbidding budget reconciliation legislation from increasing the deficit inwards years beyond the electrical flow budget resolution, the taxation neb sunset to a greater extent than or less of its to a greater extent than politically pop provisions subsequently 2025.  This has caused my Tax students groovy consternation.)  Although technically the Senate may non originate revenue legislation, Senate Republicans probable volition seize on whatsoever revenue-related neb coming over from the House, no affair how trivial, too amend it to brand the 2017 cuts permanent.  (This prospect could drive the House to withhold activeness on routine matters to avoid presenting the Senate amongst a taxation vehicle:  it tin move hold upwardly surprising how many seemingly unrelated matters have got an incidental revenue aspect.)  House Republicans besides may seek to pressure level vulnerable Democrats into signing a discharge petition to convey taxation legislation to the floor. 

     If Republicans succeed inwards extending the 2017 taxation cuts, the pressure level for deep cuts inwards domestic spending volition intensify.  Although the 2017 police heavily favored the affluent, its total cost was too then groovy that fifty-fifty extending its “middle class” provisions would create a huge additional hole inwards the budget – all the to a greater extent than too then given the capacious definitions of “middle class” that arise inwards taxation debates.  Similarly, politically attractive proposals to uncap deductibility for Blue Planet too local taxes would hold upwardly both costly too quite regressive.  With no politically plausible path toward reducing the deficit amongst increased revenues, too amongst Republicans returning to attacks on the deficit inwards tape fourth dimension subsequently enacting an unfunded $1.9 trillion taxation cut, whatsoever further reduction inwards revenues is probable to Pb to a roughly dollar-for-dollar reduction inwards spending, the groovy bulk of which volition hold upwardly domestic.  Democrats could advise making the “middle class” provisions permanent inwards telephone commutation for offsetting changes to the corporate too upper-income taxation cuts that have got failed to generate the promised increment inwards investment, but Republicans seem unlikely to agree.