US: Rescission, Midterms and 2020

Published on April 13, 2018
The White House has notified the Republican leadership on Capitol Hill that it intends to send a “rescission” proposal their way early next month that would strip a still unspecified annual amount from non-defense discretionary spending from the $1.3 trillion “omnibus” bill that was passed in March. 
That proposal has already been met with swift and strong resistance from lawmakers, including senior GOP House and Senate appropriators.
*** But it is our understanding the “rescission” proposal is just the first piece of a two-part fiscal policy push that itself ties into a larger, longer term strategy to realign the GOP and bring it more directly into the President’s fold in time for the 2020 elections. Key to the White House strategy is to link two seemingly independent proposals – namely to press the case for rescission to create additional fiscal space for a parallel proposal for “second tax cuts” that would make the individual tax cuts due to expire in 2025 permanent. In effect, the cuts to spending will create the basis of a “payfor” to the new tax cuts. ***
*** Legislative sources say that coming so soon after the CBO released its devastating report on the scale of the budget deficits and the sustainability of the current tax cuts, any “second tax cut” proposal is sure to be met with the same response as the rescission requests. The sheer numbers and complexity of both proposals are daunting – extending the doubled standard deduction, child tax credit, and repeal of the AMT would each add around $200 to $300 billion to the baseline projections, even before locking in the lowered individual brackets. Those beg for offsets far greater than the $30 or even $60 billion that could in theory be scraped up from a rescission plan. ***
*** But the probability of ultimate passage is not necessarily the point in putting forward, and linking, the two proposals. The rescissions and tax cuts, especially when tied together, are meant to unify the GOP going into the November midterms, and they could even serve to shield President Trump, and the remainder of the GOP, from blame if “mainstream” Republicans lose their seats in failing to get behind the President. ***
*** What are looking like all but certain November losses in House seats if not loss of the House may be the price to be paid for larger ambitions of the White House to realign the GOP more firmly behind President Trump, and in time for his re-election bid in 2020. ***
A Two-Pronged Fiscal Push
Republican lawmakers were mostly lukewarm, to put it politely, in their response to therescission proposal when it was first floated a week or so ago. Among the most hesitant were moderates, and key appropriators in both the House and Senate, who feel particularly vulnerable politically for having drafted the massive spending bill in the first place. In response, the White House indicated yesterday that staff are still working on the details, and will put something to the Republican leadership early next month. It will, as widely assumed, be a steep climb.
But the push to slice away some of the spending in the omnibus package – the two-year Consolidated Appropriations Act of 2018 – is not quite a simple “let’s cut massive spending” political stunt from the White House, as is widely assumed. It is, from what we understand, part of a broader and what the White House thinks will be a potentially more effective strategy to push for additional fiscal room to advance a parallel legislation to make the individual, and not just corporate, tax cuts permanent. 
Even with the combined two-pronged push, the GOP leadership on Capitol Hill will remain wary of the scheme, and there is a sense that adding yet more tax cuts so soon after the CBO’s damning report on the deficit outlook will only complicate, not ease, the navigation of either or both bills. There are doubts the tax cut proposal will ever get into legislative language or make its way beyond its starting point with the House Ways and Means Committee. 
 
And while it is assumed the combined bills would meet the requirements to proceed under rules of reconciliation in the Senate, and thus potentially pass with a simple 51 vote majority rather than a filibuster proof 60 votes, there are very serious doubts Majority Leader McConnell could put together the 50 votes to pass it anyway, if the bills ever were to clear the Committee process.
 
But with all the polling showing a high probability as currently stands of a Democratic sweep of the House of Representatives in the upcoming November mid-term elections, the ultimate failure of a rescission and second tax cut package, if properly tied together, may be moot.
 
A Shake-up of the GOP
 
The White House initiatives are coming at a difficult time for a Republican leadership already struggling to blunt a Democratic “blue wave” to retake the House in the November mid-term elections.
 
The Democrats only need a 23 net gain in seats for a sweep, and already some 43 Republicans — twice the number of Democrats — and mostly GOP moderates in blue or purple states, have announced retirements, including Speaker Paul Ryan, whose own district is now in contention. While the GOP hold on the Senate seems more secure, the anti-Trump sentiments, especially among swing suburban voters, means it too may be at risk.
 
To date, the only outright support for the White House scheme comes from the House Freedom Caucus members in the House and a handful of conservative Republican Senators. The White House does note, for Republicans queasy about blowing a deeper hole in the deficit and total federal debt, the additional cost of a second tax cut would not hit until 2025, when the individual tax cuts are slated to expire, while the spending cuts that are clawed back in the rescissions would come immediately in the coming fiscal year starting in October. 
 
But the White House strategy is not simply tied to the midterm elections. GOP members may still choose to distance themselves from this plan, and the President in turn from them. It is concurrent with a broader push by the Trump Administration, with an eye on 2020, to bring the Republican Party deeper into the President’s fold.
 
With that in mind, the President has made a clear and high-profile push already to reshape his Cabinet with more like minded, and presumably loyal, appointees. Most notably, those include the replacement of Secretary of State Rex Tillerson with nominee Mike Pompeo, National Security Advisor H.R. McMaster with John Bolton, and National Economic Council Director Gary Cohn with Larry Kudlow.
 
There will be more to come. Some of the next moves may focus on recharging and solidifying the Party ahead of the 2020 elections, behind the president and his accomplishments. That may include the appointment of Trump loyalist, and former campaign manager and political strategist Corey Lewandowski, to head the Republican National Committee when the chair’s term ends at the end of 2018.
 
The RNC is ground zero for fund raising, and red meat party politics. It’s current head, Ronna Romney McDaniel, is popular, but, like her counterpart across the aisle at the DNC, Tom Perez, may lack the fund-raising clout and fire the GOP will certainly need to rebound from a bruising mid-term in November. Lewandowski, while controversial, is seen as certainly capable of delivering on those fronts.
 
And for Trump, while some moderate Republicans in Congress may choose to skittishly separate from the president, that loss may be a long-term benefit as well. He is not on the ballot until 2020, and the Trump attitude – always be confident – is what connects him emotionally to millions of Americans alienated from the “elites” of both parties.  
 
It is as much about the fist fight, as about the policy itself.
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