Trump’s Agenda Already Faces Irresistible Forces
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Gabriel Rubin
WASHINGTON, Jan 8 (Reuters Breakingviews) - President-elect Donald Trump’s legislative agenda faces roadblocks before he even takes office. Despite his Republican Party controlling all branches of the federal government, resolving a once-in-a-decade fight over the tax code as well as immigration and energy policy overhauls is troubled by arcane budget rules, congressional dysfunction and jittery government debt markets. That risk became clearer on Wednesday, when long-term Treasury yields spiked to 5%. A bungled legislative approach could further spook markets, dooming Republicans’ plans.
Trump will meet with his party this week to hash out legislative strategy, including whether to tackle his agenda in “one big, beautiful bill” or two — a question dividing Republican leaders. Such tactical issues bedeviled Trump’s predecessors: President Joe Biden took the go-big approach at first before being forced to proceed piecemeal.
Problem is, the clock is ticking. Legislators have a two-year window before new elections roll around. A 2017 package of tax cuts passed during Trump’s first term will expire this year. Worse, market ructions demand clarity. Spiking Treasury yields come despite the U.S. Federal Reserve cutting benchmark rates, an extremely unusual combination that could indicate fears over wild policy promises further imperiling fiscal health.
Mike Johnson, Republican Speaker of the House of Representatives, has a perilously narrow majority with which to address these challenges. He favors combining a tax package with spending on border security and deportations, along with energy provisions. Republican senators prefer a two-step approach, tackling immigration and energy first and taxes later.
Both paths are riddled with risk. Some Republicans demand a deficit-neutral bill, but refuse to contemplate revenue-boosting tax rises. Cuts to social programs are politically poisonous. Even just rescinding renewable energy tax breaks faces opposition from over a dozen party members. Yet all the tax cuts under consideration could cost $7.8 trillion over 10 years without offsetting measures, according to the Tax Foundation, though analysts concede Trump's plans are a moving target. If a single messy, must-pass bill devolves into unfunded giveaways, bond markets could further revolt. That risks a broader outcry: the idea that treasuries are safe and steady assets underpin the functioning of global finance.
Complicating matters, Senate Republicans must abide by strict budget rules that only allow spending provisions to pass with a simple majority. Non-revenue changes face a higher vote threshold. That could tie up an immigration- and energy-first approach in endless politicking.
Trump’s first term had one major legislative achievement: his tax law. The strategy he decides in the next few weeks will likely determine whether he does better this time.
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CONTEXT NEWS
US President-elect Donald Trump and Republican leaders in Congress are plotting out their legislative agenda ahead of Trump’s inauguration on Jan. 20.
Senate Majority Leader John Thune has advocated a two-step approach that would feature an immigration-focused bill early in Trump’s term, followed by a revamp of a host of tax cuts that expire later in 2025. House Speaker Mike Johnson advocates for a single-bill approach with as many major priorities as possible. Trump has noted the benefits of both approaches but has not definitively chosen a path forward.
Yields on 20-year Treasury bonds rose to around 5% on Jan. 8, up from a recent low of 4% in mid-September, when pre-election polls showed Vice President Kamala Harris with an advantage.
US budget deficits have worsened as a percentage of GDP https://reut.rs/409Qm1J
(Editing by Jonathan Guilford and Pranav Kiran)
((For previous columns by the author, Reuters customers can click on RUBIN/
gabriel.rubin@thomsonreuters.com))
