Last week the Senate passed its version of the FY 2026 Budget Resolution, which is the first step of the budget process that Republicans hope to use to enact the Trump administration’s programs. Budget reconciliation is the one process that allows Congress to act on tax and spending issues without the threat of a filibuster in the Senate.
The Budget Resolution passed by the Senate has been called a “skinny” budget bill by some, as it does not contain President Trump’s highest priority – the renewal of his 2017 tax cuts which expire at the end of this year. Senate Republicans’ idea is to pass the President’s program in two steps, with last week’s legislation focused on the border, energy, and increased money for defense.
This week the House will take up its “big, beautiful bill” approach. While previously remaining neutral on one bill versus two, President Trump endorsed the House version with only one package. The House Budget Resolution has all the programs in the Senate version, plus a renewal of the tax provisions. Importantly, it also includes a $4 trillion increase in the debt ceiling, a legislative “must pass” item in the coming months.
House Speaker Mike Johnson and his leadership team is concerned that with their razor-thin majority they will only have one bite at the apple to get all their Members behind one bill. Some House Republicans are against some of the drastic cuts, especially those to programs that are popular with their constituents, such as Medicaid. However, the House GOP believes that combining the entire program into one package is likely the only way that some of the most conservative Members will vote for an increase in the debt ceiling.
With three Republican vacancies that won’t be filled until April, House Republicans are sitting with a partisan divide of 218 Republicans to 215 Democrats. As a bill dies under House rules on a tie vote, House Republicans can only lose one vote to get the President’s package passed. At this point, it is not certain that all the pieces will hang together if they vote this week. It will require direct involvement by the President, much as he did with personal calls to get Mike Johnson over the finish line to be elected Speaker.
On the Senate side there is genuine skepticism as to the ability of the House leadership to get the big bill passed, and in their view their smaller bill is an alternative to get an early win for the President on key issues and keep the tax renewal until later in the year.
Shutdown deadline
While all the action has been on the Budget process and laying the groundwork for a Budget Reconciliation Bill, the clock is ticking on a government shutdown that will happen on March 14 if Congress doesn’t pass an FY 2025 budget proposal. Since the beginning of the current fiscal year on Oct. 1, 2024, the government has been running on a Continuing Resolution (CR) that keeps government spending constant at current levels. There is some movement to just pass a CR for the remainder of the current fiscal year and put all the focus on FY ’26 that begins on Oct. 1, 2025. This is going to start to grab the headlines as the deadline approaches.
Ukraine
With the President’s focus on bringing peace between Russia and Ukraine, both French President Emmanuel Macron and UK Prime Minister Keir Starmer are scheduled to visit the White House this week. Macron comes first on Monday, and Starmer on Thursday. Both are anxious to clarify the President’s position on talks between Russia and Ukraine.
As the Administration works to end the war, Treasury Secretary Scott Bessent has taken the lead on the President’s idea to reach an agreement between the U.S. and Ukraine on strategic minerals, energy, and state-owned enterprises. Last week Secretary Bessent was in Ukraine to start discussions, making the point that a closer economic partnership would strengthen the ties between the two nations.
Tariffs
President Trump’s threats for tariffs have rocked markets, yet his top aides make the point that Donald Trump is a world-class negotiator and tariffs are a critical part of the President’s strategy to strengthen the U.S. industrial base.
Interestingly, in the recently released minutes for the Fed’s Federal Open Markets Committee (FOMC) meeting that was held on January 28/29, tariffs were discussed. In discussing the outlook for interest rate policy, the minutes stated “However, other factors were cited as having the potential to hinder the disinflation process including the effects of potential changes in trade and immigration policy…”
The FOMC next meets on March 18/19 when there may be more clarity with respect to these trade-related issues.
