President Donald Trump believed he would gain leverage by imposing huge new tariffs. Instead, he’s received a nervous Congress and a tax measure that is currently in neutral.
At a time when Republicans hoped to see movement on the president’s multitrillion-dollar tax bill, the market selloff triggered by last week’s massive tariff announcement has alarmed investors and created a significant diversion.
The political math is becoming more difficult by the day as Congress is sharply split on how to finance the tax plan. A stalled tax bill, an earlier-than-expected debt ceiling crunch, and a party that is increasingly out of step with the markets and even its own messaging could result from the loyalty of Republicans, even though they aren’t yet racing to curb Trump’s trade agenda because many owe the president their seats and positions of power.
This week, the House of Representatives will decide whether to approve a Senate budget resolution that would pave the way for the reconciliation process to extend Trump’s 2017 tax cuts. But the GOP is already split on the plan. The bill’s failure to commit to significant expenditure cuts to balance the $5.3 trillion in tax cuts and spending increases it authorizes has infuriated House fiscal hawks.
“Budget hawks in the House oppose what they see as gimmicks in the Senate’s budget resolution, which would open the door to fewer spending cuts than what this faction wants,” Stifel policy analyst Brian Gardner said in a note to clients on Monday. “When the House passed its budget resolution in March, the budget hawks voted for the plan even though they wanted more than the $2 trillion in cuts” stipulated in their own resolution.
That framework was subsequently drastically reduced by the Senate, resulting in a bill that now only calls for $4 billion in offsets. The House budget committee’s chair, Jodey Arrington, described the action as “unserious and disappointing” on Saturday, expressing worries that enough members of the chamber share to undermine the overall tax measure.
Trump gave Louisiana Republican House Speaker Mike Johnson his influential position, and he has so far restrained budget conservatives by claiming that they have an obligation to back the president’s program no matter what.
“Most Republicans want to avoid being seen as an impediment to President Trump’s agenda, so they might vote for the budget resolution in order to keep the process moving forward,” Gardner said. “The angst over the lack of deficit reduction in the Senate budget resolution, however, might cause some budget hawks to split with the leadership this time.”
Republicans hold slim majorities in both chambers of Congress, and the Senate budget resolution’s text shows that there isn’t even a simple majority of votes to pass even small budget cuts, let alone the kind of painful reforms that would actually cover a tax-cut package that, once Trump’s stated goals of reducing taxes on overtime income, Social Security benefits, and tipped wages are taken into account, would cost between $5 trillion and $11 trillion over ten years.
In order to get a law on Trump’s desk by Memorial Day, Johnson wants the House to approve the Senate budget resolution this week.
In a Friday analysis, Charles Konigsberg, a former chief counsel to the Senate Finance Committee, stated that “if the two chambers pass their respective reconciliation bills in May, they will appoint a House-Senate conference committee to resolve their differences.” “It is here that the process might possibly grind to a halt because the House and Senate remain far apart on Medicaid cuts, food stamp cuts, certain tax issues, and how to measure the deficit impact of the tax cut extensions.”
The impending conflict over the debt ceiling further muddies the waters. As markets continue to tremble following Trump’s trade pronouncement, Treasury Secretary Scott Bessent issued a warning this week that the US would reach the limit as early as next month, a timeframe that might be moved up if declining asset prices hurt tax collections.
The proposed reconciliation plan would increase the debt ceiling by $5 trillion, which would be sufficient to pay for the government’s borrowing needs through the midterm elections in 2026. However, if the so-called X date comes sooner than anticipated, it would disrupt sensitive tax bill negotiations and compel lawmakers to put emergency borrowing authority ahead of long-term budgetary objectives.
Henrietta Treyz, chief of economic policy at Veda Partners, advised investors expecting that Congress will assert itself by regaining the authority over tariffs that it gave to the president in recent decades to pay attention to the dynamics at work in the budget negotiations.
While some have found comfort in the fact that seven Republican senators are supporting legislation that would restrict Trump’s ability to levy tariffs unilaterally, the president cannot be restrained by this level of support.
A two-thirds majority in both the House and the Senate would be needed for such legislation to become law, and the White House threatened Monday to veto any such legislation. This implies that about 75 Republicans in the House and 12 Republicans in the Senate would have to defy their party’s leader.
“If the market thinks that it can send a strong enough negative message to lawmakers to get them off the sidelines and into the game of reining in the President … there are four days left to send that message before Congress leaves town for the Easter/Passover recess and doesn’t come back until April 28th,” Treyz wrote in his note on Sunday. “With the budget dominating their agenda and no House autonomy on this subject, we see no scenario where Congress acts to restrain the President or pull him or his accommodating Cabinet back.”
