Republicans must resolve three conflicts to pass Trump’s agenda

Congressional Republicans have set conflicting goals that will complicate negotiations for a budget reconciliation package to enact President Trump’s agenda.

The House and Senate adopted a unified budget blueprint after two months of debate over how much spending and tax cuts to instruct their committees to find for the package.

Republicans are now under pressure to resolve their differences quickly as they decide what to include in the legislation that committees plan to release in the coming weeks.

Sweeping tax and spending cuts will be among the most difficult provisions to negotiate. Republicans also plan to include a debt limit increase, energy policy changes and funding for border security, immigration enforcement and defense.

Some of the commitments made to win fiscal hawks’ support conflict with the goals of more centrist Republicans, setting up clashes in several areas.

Cutting Medicaid

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Perhaps the most divisive issue is determining how much savings Republicans can find from Medicaid.

Mr. Trump and congressional Republicans have said they plan to root out waste, fraud and abuse in Medicaid while protecting benefits, but the details of how to overhaul the health insurance program for low-income and disabled people are more complicated than that.

The budget instructs the House Energy and Commerce Committee to find $880 billion in savings. Most of that must come from Medicaid because the panel does not have jurisdiction over enough other mandatory spending programs.

House Freedom Caucus members Reps. Eric Burlison of Missouri, Chip Roy of Texas and Andy Harris of Maryland outlined some of their ideas for Medicaid in a Fox News op-ed last month.

“Reimplementing Clinton-era work requirements alone would save roughly $120 billion over 10 years and put more workers back in our economy,” they said. “Site neutrality could save over $471 billion. Normalizing the federal reimbursement rate for the expansion population under Medicaid would save nearly $600 billion. You could even take [President] Biden’s advice and eliminate Medicaid provider taxes that he called a scam and save the taxpayer $612 billion over 10 years.”

The changes could be phased in and save taxpayers hundreds of billions of dollars “without cutting anyone’s benefits,” the Freedom Caucus members said.

Republicans widely support the work requirement proposal. However, some have viewed ideas such as reducing the federal reimbursement rate for the expansion population as a backdoor way of cutting benefits because states would have to make up the gap or reduce their Medicaid offerings.

Centrist Republicans have said they will not support any Medicaid changes that lead to cuts for “eligible beneficiaries” such as single mothers, children and people with disabilities.

They are OK with making able-bodied adults work to receive benefits, implementing a citizenship verification requirement to ensure Medicaid dollars are not being spent on illegal immigrants, and creating mechanisms to limit fraud.

“We’re talking about speeding up the process for eligibility verification,” Rep. Michael Lawler, New York Republican, said at a CNN town hall. “Joe Biden lessened it to a year. We want to speed it up to every quarter to make sure that someone who is on Medicaid is actually eligible for it.”

However, areas where Republicans agree are unlikely to save enough from Medicaid to reach their goal of a minimum of $1.5 trillion in spending cuts.

Fiscal hawks will seek more, and moderates will likely push back.

Repealing clean energy credits

Another area where fiscal hawks are clashing with other Republicans is their desire to repeal clean energy tax credits from the Inflation Reduction Act, a reconciliation package that Democrats enacted during Mr. Biden’s tenure.

The White House reportedly said in a written commitment to fiscal hawks that the Inflation Reduction Act credits “will be repealed to the fullest extent possible.”

Other Republicans oppose such a sweeping approach to rolling back the Inflation Reduction Act.

“A wholesale repeal, or the termination of certain individual credits, would create uncertainty, jeopardizing capital allocation, long-term project planning, and job creation in the energy sector and across our broader economy,” four Senate Republicans wrote in an April 9 letter to Majority Leader John Thune of South Dakota.

Sen. Lisa Murkowski of Alaska led the letter, which was also signed by Sens. John R. Curtis of Utah, Thom Tillis of North Carolina and Jerry Moran of Kansas. Together, they form a voting bloc big enough to derail the bill.

The senators did not say which credits they want to preserve; instead, they urged a “targeted, pragmatic approach” that considers whether repealing certain credits would harm domestic manufacturing and raise consumer energy bills.

Last month, Rep. Andrew R. Garbarino of New York led 20 other House Republicans in a letter with a similar message about ensuring that changes to energy tax credits do not inhibit private-sector investments in domestic manufacturing or raise utility costs.

Like the senators, the House Republicans did not make specific demands about credits worth preserving but showed that they are a significant voting bloc that can’t be ignored.

“Both our constituencies and the energy industry alike remain concerned about disruptive changes to our nation’s energy tax structure,” they said.

One Inflation Reduction Act credit that several Republicans want to keep, but maybe rework, is the clean fuels production credit. Several lawmakers brought it up during a Ways and Means Committee hearing this year on members’ tax priorities, along with other tax incentives that encourage the use of biofuels and sustainable aviation fuels produced in many Midwestern states.

Offsetting tax cuts

Republicans plan to use the reconciliation package to extend and expand on the president’s first-term tax cuts, many of which are set to expire at the end of the year. However, there are internal party disagreements about how much of those costs must be offset.

The budget that both chambers adopted accepts the Senate’s decision to use a “current policy” baseline that does not count the cost of extending tax cuts already in law. Most Republicans say this will make it easier to make the 2017 tax cuts permanent.

Sen. Bill Cassidy, Louisiana Republican, opposed using the current policy baseline. He argued that the $3.8 trillion cost of permanently extending the 2017 tax cuts should be offset.

Mr. Cassidy said he voted for the budget based on a leadership commitment to pay for the bill through various means, whether within the reconciliation vehicle or outside that process, and that he will ensure the result truly addresses the national debt.

In the House, fiscal hawks received their leadership commitment that the final bill would be at least deficit neutral after assuming $2.5 trillion in revenue would be generated from the package’s economic growth effects.

“If you don’t end up with the right spending cuts, you’re not going to get tax cuts,” Mr. Roy said.

He and other fiscal hawks said they received a commitment from House Speaker Mike Johnson, Louisiana Republican, that the tax cuts would be dialed up or down based on the corresponding spending cuts to preserve deficit neutrality.

If the spending cuts fall short, Republicans may not have room to offset all their tax priorities, which would upset various constituencies.

Several Senate Republicans have said they can’t support a package unless it makes the 2017 tax cuts permanent.

Mr. Trump has demanded that the package include new tax cuts, such as exemptions for tips and overtime income.

Republicans from high-tax Democratic-led states such as New York, New Jersey and California insist their support is conditional on lifting the $10,000 cap on state and local taxes that can be deducted from federal income taxes owed.