Trump told the Senate GOP that he wants a debt limit increase on his tax bill. What exactly does that mean?
Increasing the statutory debt limit is the most consequential vote Congress will take this year, and it’s one of the allowable uses of budget reconciliation. The budget resolution that passed the House included reconciliation instructions to increase the debt limit by $4 trillion. Extraordinary measures taken by the Treasury to pay the United States' debt service obligations will run out in August or September. The tax bill, assuming Congress passes it before the end of July, provides a vehicle to increase the debt limit, although the tax bill will be a partisan product.
I spent some time on this in the previous mailbag, but I didn’t make the connection to the tax bill. As I noted, increasing the debt limit is the most consequential issue Congress will consider this year. If you think the markets have reacted poorly to tariffs, you don’t want to see what will happen if the debt limit isn’t increased.
Let’s start with where we are. The Fiscal Responsibility Act of 2023 suspended the debt limit through January 1, 2025. Essentially, this means that the Department of the Treasury had the authority to borrow as much as it needed to meet the fiscal obligations of the federal government. According to the Congressional Budget Office, tax receipts cover 73% of spending in FY 2025. The remaining 27% of federal spending is financed through securities sold by the Treasury. Securities are also issued to cover debt financed by previously issued securities that have matured.
The suspension of the debt limit expired on January 1. The Treasury has continued to meet the federal government’s debt service obligations through “extraordinary measures” since January 21. Those extraordinary measures include suspending investments in federal retirement funds (the Civil Service Retirement and Disability, the Postal Service Retiree Health Benefits, and the Government Securities Investment Fund) and redeeming investments made by the federal government before maturation.
As of March 19, the Treasury had $163 billion in extraordinary measures remaining. The Treasury’s General Account also had $385.7 billion on hand as of March 24. The Congressional Budget Office projects that the “X date”–when extraordinary measures will be exhausted–could happen in August or September. There’s a chance it could happen before the end of August. It depends on borrowing needs. The larger the borrowing needs are, the sooner the X date will be reached.
There’s a statutory debt limit found in 31 U.S.C. §3101 note. The statutory debt limit was last increased in December 2021. That increase was $2.5 trillion. The next action on the debt limit was the aforementioned suspension in the Fiscal Responsibility Act through January 1, 2025. As noted, though, the Fiscal Responsibility Act didn’t increase the debt limit; it just didn’t apply until the specified date.
Increasing the statutory debt limit is one of the proper uses of budget reconciliation. However, Congress can’t suspend the debt limit in reconciliation. What Trump said alludes to the budget reconciliation instructions in the House-passed budget resolution, H.Con.Res. 14. Those instructions state, “The Committee on Ways and Means shall submit changes in laws within its jurisdiction that increase the statutory debt limit by $4,000,000,000,000.” For those who have trouble keeping up with so many zeroes, that’s $4 trillion.
The House Ways and Means Committee has to recommend a $4 trillion increase in the statutory debt limit that will be included in the tax bill. The current time frame for that is to be determined. Based on what has been publicly reported, the budget resolution kickstarting the budget reconciliation process could get done the week of April 7. The legislation produced under reconciliation probably wouldn’t see floor time until July, but it could happen sooner or even later.
By the way, Democrats are in no mood to help on the debt limit, at least on the House side, making reconciliation an even more attractive path forward. Passing the tax bill alone will be challenging, and adding the debt limit to it just adds to the complexities of passing that bill.
Are House and Senate Republicans on the same page?
Regardless of whether the same party controls both chambers, differences between the House and the Senate have long been documented. You’re dealing with a lot of personalities, each with their own goals and ideas of how legislation should look. Former House Speaker Tip O’Neill (D-MA) once said, “The House Republicans are not the enemy, they’re the opposition. The Senate is the enemy.” The end goals are the same, but the differences in how they get there drive drama on major legislation on Capitol Hill.
This is a better question than most people realize. People assume because Republicans have the House and Senate, they’re all reading from the same book. Generally, they have the same end goals, but you’re dealing with 271 different personalities–as of today, 218 House Republicans and 53 Senate Republicans.
There’s a general rule in legislative politics, though, best said by former House Speaker Tip O’Neill (D-MA). When speaking to the House Democratic Caucus many years ago, O’Neill said, “The House Republicans are not the enemy, they’re the opposition. The Senate is the enemy.” Before I began working on federal policy, I would hear similar sentiments in my home state of Georgia, where House and Senate Republican leaders would have, at times, frosty relationships, particularly as sine die approached.
There are different ways of looking at this. As a general rule, the House is the more partisan of the two chambers. It’s the closest to the people. Each member represents around 750,000 people, and districts these days skew more heavily to one side or the other than they used to. Think of it from this perspective. Only 40 House districts are truly competitive, and there are just 16 “crossover districts,” or districts that went for one party in the presidential election but for the other party in the House election. That’s tied for the lowest number since 2000.
On the other hand, the Senate is designed to operate on consensus. With the exception of privileged legislation like budget reconciliation or the Congressional Review Act, legislation either passes by unanimous consent (without a recorded vote) or through the normal legislative process. The normal legislative process has two steps where three-fifths of the Senate present and voting are required to advance legislation toward final passage. Unless your conference has 60 senators willing to vote in lockstep (a party has had 60 seats only once since 1979), you’ve got to reach across the aisle. Of course, final passage requires only a simple majority. Also, the interests of a particular state may not be the same as a random House district that slants more conservative or progressive.
Several years ago, then-Speaker Paul Ryan (R-WI) offered a rare glimpse into the tension between the House and the Senate when he mentioned hundreds of bills passed by the House that were waiting for action in the Senate. It’s a dynamic that the public doesn’t see very often when the same party controls both chambers.
Today, we’re seeing this most play out in the context of budget reconciliation and tax cuts. The House has a budget resolution that would extend the Tax Cuts and Jobs Act (TCJA) of 2017, include funding for the border and immigration enforcement, the military, and cut around $1.5 trillion in spending. The Senate wanted to fund the border, immigration enforcement, and the military separately from the extension of TCJA and passed a separate budget resolution to do so. Thus far, the House strategy is the preferred approach of the White House.
That’s not the end of the back and forth. Senate Finance Committee Chairman Mike Crapo (R-ID) is pursuing a “current policy baseline” strategy that would have the Congressional Budget Office score an extension of TCJA as revenue neutral. The problem with that approach is a) the individual tax cuts and changes under TCJA expire at the end of 2025, b) the Senate parliamentarian has to rule on the proposal, and c) it’s an unprecedented abuse of the budget reconciliation process. House Republicans aren’t on board with this approach because conservatives want spending offsets for at least some of the deficit impact the extension of TCJA will cause. Using a current policy baseline to make it appear on paper as though the extension of TCJA doesn’t have a very, very large impact on the deficit doesn’t change the fact that it does.
Back to the question. Are House and Senate Republicans on the same page? The short answer is “yes,” but it’s nuanced. Undoubtedly, the goals are the same. The details and strategy on how to get there vary, sometimes significantly.
Are Republicans going to cut Medicaid to pay for the tax bill?
Republicans are likely to make changes to Medicaid, but it’s too early to say what those changes will be, or whether or not the deficit reductions target given to the House Energy and Commerce Committee will rely on spending reductions alone or include revenue enhancements. Some of the changes to Medicaid floated by House Republicans have already been dismissed, as Trump and Speaker Johnson have said there won’t be cuts to benefits. The devil is in the details of Medicaid changes. However, we have to recognize that Medicaid is a broken program that needs to be overhauled. It faces provider shortages and low reimbursement rates, among other challenges.
This was a criticism of the budget resolution to start the reconciliation process for the extension of the TCJA. House Democrats repeatedly said that Republicans plan to pay for the extension by cutting Medicaid. House Republicans countered that “Medicaid” never appears in the budget resolution.
While Republicans were technically right, the budget resolution gave the House Energy and Commerce Committee a $880 billion minimum deficit reduction target. That committee has jurisdiction over Medicaid. It’s not hard to conclude that instruction, especially since Medicaid is 93.4% of the mandatory spending in the committee's jurisdiction. That said, deficit reduction doesn’t only have to come from changes to Medicaid. It can also be achieved through revenue enhancements in the committee's jurisdiction.
A menu of potential spending reductions and reforms was circulated in January, and it found its way into the hands of the media. That document included several options to change Medicaid as potential pay-fors. Some of those changes are seemingly off the table after Trump and Speaker Mike Johnson (R-LA) said there wouldn’t be benefit cuts. We’ll see what ultimately happens.
The bigger changes found in that menu of spending reductions include per capita caps (block grants to states for Medicaid), equalizing the federal medical assistance percentage (FMAP) for the population covered through the Affordable Care Act, and lowering the Medicaid matching floor rate. Each of these changes would bring substantial savings. More than $1.8 trillion over ten years, but they would also have impacts that involve reducing the number of people covered by Medicaid. Some would argue that this is the responsibility of states if Congress does overhaul Medicaid.
Look, Medicaid is a broken program. President Obama noted in a June 2009 letter to Senate Democrats that “ever-increasing cost of Medicare and Medicaid are among the main drivers of enormous budget deficits that are threatening our economic future.” Nothing has changed in the nearly 16 years since he wrote those words. Medicare and Medicaid are two of the top five most significant expenditures of the federal government. There’s a well-documented shortage of providers who accept Medicaid because of low reimbursement rates, patient demand, bureaucratic issues, and geographic disparities. Keep in mind that spending on Medicaid in FY 2025 is projected to exceed $650 billion. It’ll rise to a little more than $1 trillion in FY 2035. That’s a lot of money to pour into a program rife with problems.
Republicans would argue that block-granting Medicaid gives states more control over the program, allowing them to innovate, expand provider networks, and improve outcomes. The jury is out on that in the handful of states that got waivers to expand Medicaid in a more conservative vision.
If, ultimately, congressional Republicans reduce spending on Medicaid in some way, the devil will be in the details. We shouldn’t reflexively say it’s a bad idea. If the rate of spending growth is reduced, that’s not a spending cut. Improvements to the program are needed. The questions we should ask ourselves are: “Are the changes to Medicaid that Republicans pursue intended to address the problems in the program or simply provide spending reductions to pass a tax cut?” and “Do these changes to Medicaid improve the program?”
It’s too early to say right now because we don’t know for sure what’s on the table if the biggest changes have already been nixed.
