U.S. Congressional Update

As we head into summer, Congressional Republicans continue to focus on advancing their massive reconciliation bill which, among other things, provides a variety of tax breaks, cuts Medicaid and food assistance, phases out incentives for electric vehicles and renewable energy technologies, and increases the debt limit.

Following arduous negotiations with the White House and key House members on a range of contentious issues, the Republican leadership was able to muscle their version of the bill through the House of Representatives by a vote of 215-214, with one member voting present. The nonpartisan Congressional Budget Office estimates that the House bill would increase the deficit by $2.8 trillion and result in 11 million Americans losing health insurance.

The Senate is now working on its own version of the reconciliation bill. Despite pleas from Speaker Mike Johnson that the Senate make only minor adjustments to the House-passed bill, the draft Senate legislation makes some significant changes which have provoked opposition among both House and Senate Republicans.

Some of the most contentious changes are deeper cuts to Medicaid that would negatively impact rural hospitals; adjustments to the time frame for phasing out clean energy tax credits that were contained in the Inflation Reduction Act; and a reduction in the state and local tax deduction (SALT). There is also a controversial new provision in the Senate bill that would allow the sale of millions of acres of public land.

It will be a significant challenge for House and Senate Republican leadership to cobble together a bill that can win a majority in both bodies. If they try to appease hardline deficit hawks with deeper cuts to social safety net programs, they risk losing more moderate members, and vice versa. Similarly, a group of Republican House members from high-cost states have stated that they will vote against the final bill if the SALT deduction is reduced from the level in the House version.

Republicans had set a goal of getting their reconciliation bill to the President’s desk by July 4.  However, in recognition of the remaining hurdles, their new plan is to pass the final version in both houses before the traditional August recess. Treasury Secretary Bessent has said that the U.S. will reach its debt ceiling sometime in August, so if Congress is unable to find a path forward on reconciliation in the very near future, they may have to come up with a “Plan B” to increase the debt limit.