Full Schedule Awaits Congress This Fall

When Congress returns to Washington in September following the five-week summer break, they will have a full agenda that includes increasing the debt ceiling, funding government operations beyond Sept. 30, and passing tax reform. The ambitious legislative schedule follows the Senate’s inability to advance health care reform legislation during the summer.

The Constitution grants Congress the authority to increase the federal government’s borrowing authority. On March 16, the federal government officially reached its statutory borrowing limit; however, the Department of Treasury has been using “extraordinary measures” to continue funding operations. Those measures will be exhausted this fall, necessitating an increase in the debt ceiling.  

White House officials indicate that the debt ceiling must be increased by the end of September to avoid a government default. The Trump Administration publicly supports a “clean” debt ceiling increase, potentially setting up a clash with some congressional Republicans.

That complicates the politics for Republican Leadership in the House and Senate, as many rank-and-file Republicans would like government spending cuts to accompany a debt ceiling increase. However, Democrats are unlikely to support spending cuts as part of a debt ceiling increase. That may put Republican leaders in the awkward position of relying on Democrats and moderate Republicans to pass the legislation.

Republican Leadership in the House and Senate are eager to show they can operate effectively after failing to deliver on their long-held promise to repeal the Affordable Care Act. That may give Democrats some negotiating leverage in the debt ceiling negotiations.

It is possible that an increase in the debt ceiling will be accompanied by a government spending bill. Funding for the federal government expires on September 30, which marks the end of the federal government’s fiscal year. That means Congress will need to pass at least a Continuing Resolution (CR), which would fund government operations while lawmakers continue to negotiate. There are only 12 legislative days in September, increasing the likelihood that a CR will be needed to avoid a government shutdown.

Broad disagreement over Fiscal Year (FY) 2018 spending levels mean lawmakers remain far apart on a deal. Many Republicans favor increasing defense spending above the levels specified in The Budget Control Act of 2011, while Democrats are seeking corresponding increases for non-defense discretionary programs.

Notwithstanding clashes on the debt ceiling increase and government spending, the biggest battle may be later this fall as Congress attempts to pass tax reform. House Speaker Paul Ryan has vowed to complete tax reform before the end of the year.

A key procedural hurdle to accomplishing tax reform remains passage of a FY18 budget resolution. Congress has yet to pass an FY18 budget resolution, which is needed to pass tax reform using the budget reconciliation process.

Use of the budget reconciliation process would make it easier to advance tax reform legislation in the Senate should it be approved in the House. Under traditional Senate rules, 60 votes is needed to move forward with any legislation. However, under the budget reconciliation process, only 50 votes (a simple majority) is needed.

The challenge for Speaker Ryan is crafting a budget resolution that contains enough spending cuts to attract conservatives without alienating moderates in the House Republican Conference. In reference to using budget reconciliation to pass tax reform, House Ways and Means Committee Chairman Kevin Brady (R-TX) said, “Clearly, no budget, no tax reform.”

Realizing that a bipartisan approach may be needed to pass tax reform, Trump Administration officials have reached out to moderate House Democrats who are seeking to lower the income tax rates for corporations — including small businesses.

Acknowledging the difficulty in passing tax reform that does not add to the federal deficit, negotiators are discussing a combination of permanent corporate tax cuts and temporary cuts for individuals and businesses.

Part of the motivation for tax reform is the billions in earnings that U.S. corporations have overseas. According to the Joint Committee on Taxation (JCT), U.S.-based multinational corporations have approximately $2.6 trillion in profits offshore to avoid paying corporate income taxes. Although not all of that income would be repatriated, it could help provide some of the revenue needed for Congress to pass tax reform.

BSCAI is closely monitoring tax reform negotiations and speaking with congressional offices to ensure that any changes to the tax code are fair and promote economic growth and the continued health of the housing industry.