Budget Challenges Facing the new Treasury Secretary and OMB Director

With Senate confirmation of Treasury Secretary Steve Mnuchin and White House Budget Director Mick Mulvaney, following is an overview of key fiscal challenges facing the new Administration:

  • Budget Reconciliation to Repeal-and-Replace the ACA: Jan. 27, 2017 was the deadline set in the  Budget Resolution for Congress’ health committees (Senate Finance and HELP; and House Ways & Means and Energy & Commerce) to report legislative language to repeal-and-replace the Affordable Care Act.  As explained in the previous blog, the Budget Reconciliation process is being employed in order to avoid a Senate filibuster, although the Senate’s Byrd Rule limits the scope of the Reconciliation procedure.
  • Debt Ceiling: will expire March 15, 2017, although “extraordinary measures” can extend Treasury’s borrowing capacity for a time—weeks or possibly a few months. The Debt Ceiling is a legal limit on the Treasury’s ability to borrow funds necessary to finance already incurred obligations of the United States; it does not create new obligations. See our Debt Ceiling page for background.   Treasury Secretary Steve Mnuchin (confirmed by the Senate Monday evening) said during his January confirmation hearing, “Honoring the U.S. debt is the most important thing…. I would like us to raise the debt ceiling sooner rather than later.”
  • Current Appropriations Run Out: Stopgap funding (continuing resolution) for the current fiscal year, FY 2017, will expire April 28, 2017. Government will shut-down absent enactment of appropriations bills or another continuing resolution.  Appropriations can be filibustered and therefore require bipartisan agreement in the Senate.
  • FY 2018 Budget — another Bipartisan Budget Act to raise the spending caps? The President is required to submit a detailed budget for FY 2018; last Thursday Sean Spicer told reporters “we’ll have a budget out in a few weeks.” The 2011 Budget Control Act imposes very tight statutory spending caps in each year through 2021; the existing spending caps for FY 2018 do not provide any funding to accommodate increasing healthcare costs for veterans, growing infrastructure needs, a growing and aging population, or general inflation. Consequently, Congress has twice – in 2013 and 2015 – adopted “Bipartisan Budget Acts” to adjust upward both the defense and non-defense caps. The latest upward adjustment is for the current fiscal year, FY 2017.  Key Issue: will the new Administration work with Congress to adjust upward the caps for FY 2018 and FY 2019?  Note:  Appropriations can be filibustered and therefore require bipartisan agreement in the Senate.  Appropriations Caps explained
  • Supplemental Funding for FY 2017 for the Border Wall, Defense Increases, and Infrastructure? Will supplemental funding for a border wall, infrastructure repairs, and defense spending be requested for the current fiscal year, FY 2017?  Key Fact: supplemental funding would violate the FY 2017 spending cap unless the border wall and infrastructure work are declared to be emergency needs and military increases are designated for the war-on-terrorism. Cost of the wall: no projections from CBO yet, but Reuters reported a U.S. Customs and Border Protection (CBP) estimate that the wall may cost as much as $21.6 billion. Compare this to other non-defense discretionary programs on our spending page.
  • Tax reform is more likely in the 115th Congress (2017-18) than in previous Congresses for three reasons: (1) one-party control of the White House and Congress; (2) the ability of the GOP to circumvent potential filibusters by using the filibuster-proof budget reconciliation process (see our description of the budget reconciliation process in the budget process overview page and a narrative description in the budget process nutshell); and (3) similar statements last year by then-candidate Trump and House Republicans on tax cuts and tax reform.  See our Tax Reform page for background and highlights of House GOP tax proposals and Trump campaign proposals.
    Tax reform could include: corporate rate reductions, similar reductions for pass-through entities, estate tax repeal, elimination of the “carried interest” deduction, and some form of “Border Adjustment Tax” or international tax reform.
    If Budget Reconciliation is used for tax reform to avoid a filibuster, legislative action would be delayed until after the Affordable Care Act Reconciliation legislation is completed. In addition, a Budget Reconciliation Tax Bill would have to comply with the Senate’s Byrd Rule which bars long-term deficit increases, so that tax rate cuts would have to expire after 10 years or the rate cuts would have to be fully paid for with repeal of existing tax deductions and credits— aka “tax expenditures” – requiring very tough political trade-offs.  Speaker Ryan has indicated he favors paying for the rate cuts.