Congress Moves Forward on Major Tax & Spending Cuts

As we have been reporting in this blog the last couple of weeks the House and Senate have been trying to pass a joint Budget Resolution to extend expiring tax cuts, increase spending on key presidential priorities and implement new tax cuts. Passing the Budget Resolution is the first step in a multi-tier process. The passage unlocks the Budget Reconciliation process that allows for easier voting rules in the Senate.
 
On Thursday, after a lot of arm-twisting, the House finally passed the Senate approved Budget Resolution largely on a party line vote of 216-214. It was pushed over the line by verbal assurances from Senate leadership that their intended goal is to achieve at least $1.5 trillion in spending cuts, even though the directions in the budget resolution for senate committees only require $4 billion in cuts over the next decade, while the House must find up to $2 trillion in cuts. It has been reported by multiple sources that Speaker Johnson even told his right flank of deficit hawks that they could petition for his removal as Speaker if the final bill does not achieve at least $1.5 trillion in spending cuts.
 
The passage of the budget resolution allows the committees in both the House and Senate to begin writing the bills that will implement tax and spending changes. While the two chambers have different objectives, they are likely to work jointly as they craft the legislation. Their announced goal is to have these bills drafted and voted on by Memorial Day. As we have seen so far, timelines have slipped in this process as they often do because of the complexity of the legislation and the expiring tax cuts do not go away until December 31, 2025.
 
The resolution, sometimes referred to as “…one, big, beautiful bill…” is the primary legislative vehicle to implement much of President Trump’s first year agenda:

• Extending the expiring tax provisions of the Tax Cut and Jobs Act (TCJA) of 2017,
  
  
• A primary fight for New York’s republican congressional delegation is to fix the SALT cap on federal deductions which increased federal taxes on a large swath of New Yorkers,
  
  
• Adding new tax cuts to eliminate federal taxes on tips, social security, possibly lowering corporate taxes again, and more (rumor has it that chairs of the tax writing committees are fielding tax cut request in 70 different areas of the code),
  
  
• Increase spending for defense, border security, deportation, and energy production by about $600 billion over the next decade, and
  
  
• Cutting other federal spending by at least $1.5 trillion, and as much as $2 trillion, over the next decade to offset the debt increases that these tax cuts would generate.

A key issue here is that under the special budget rules required under Budget Reconciliation changes to social security can only be addressed under regular voting procedures in the Senate (60 votes to advance legislation).

Additionally, eliminating federal taxes on social security will also force the Social Security and Medicare Trust funds to become insolvent much faster. The Committee for a Responsible Budget estimates that such a change would require Social Security to reduce promised benefits by one-quarter if the tax is repealed. Also, its old age trust fund would become insolvent in 2032 instead of 2033. The Medicare HI trust fund would become insolvent in 2030, six years faster than under current law.

We will talk about the impact of potential cuts on New York in more detail in our next update but there are two big issues that many Senate and House members remain very uncomfortable with: first, that cutting up to $880 billion from Medicaid that provides health care to more than 70 million Americans, and second, even if the maximum targeted level of spending cuts is achieved, enacting this bill into law would still add $2-4 trillion to the federal debt over the next decade.