Estimated reading time: 13 minutes
(1) NEW WHITE HOUSE ATTACK COMING ON CONGRESS’S POWER OF THE PURSE—The “Pocket Rescission.”
OMB Director Russell Vought's latest plan to attack Congress' appropriations authority is the "pocket rescission," reports Politico.
Under the 1974 Impoundment Control Act (ICA), when the President sends a rescission proposal to Congress, the funds are automatically withheld for 45 days while Congress considers the proposal, but the funds must be released after the 45 day period if Congress does not enact the rescission.
Vought’s plan is to send rescissions to Congress within 45 days of the end of the fiscal year, so that the funds are withheld through September 30th, the last day of the fiscal year, and expire.
Vought calls this a "pocket rescission," but it is clearly an end run around the requirements of the Impoundment Control Act and Congress’s constitutional authority over appropriations.
In 2018, the Government Accountability Office (GAO), ruled that "the ICA (Impoundment Control Act of 1974) does not permit budget authority proposed for rescission to be withheld until its expiration simply because the 45-day period has not yet elapsed. A withholding of this nature would be an aversion both to the constitutional process for enacting federal law and to Congress’s constitutional power of the purse, for the President would preclude the obligation of budget authority Congress has already enacted and did not rescind."
Vought will likely launch this illegal and unconstitutional procedure in August while Congress is in recess and the federal government is within the last 45 days of FY 2025. Tens of billions, or more, in congressional appropriations could be illegally withheld and effectively canceled in this manner, and it is doubtful a court challenge could reach the Supreme Court in time to force release of the funds in time for their obligation.
In a related development last week, the GAO released two legal decisions reaffirming the President has no inherent authority to unilaterally freeze enacted appropriations. GAO issued a specific finding that the Trump Administration is illegally impounding funding for museums and libraries across America.
(2) TRUMP’S BUDGET MEGABILL: Senate’s Tax and Medicaid Changes; Byrd Rule Cuts Numerous Provisions Including SNAP; What’s Next in Reconciliation?
The big budget reconciliation news last week was release of the Senate Finance Committee’s draft title containing tax and Medicaid legislation: Bill Text | Section-by-Section Summary. Key provisions in the Finance title:
Steeper Medicaid cuts than the House plan by placing tighter limits on provider taxes. For the 41 states that have adopted Medicaid expansion, it gradually lowers the provider tax from 6% to 3.5% in 2031. The Finance language also broadens the reach of the new Medicaid work requirements.
For a nonpartisan, up-to-date comparison of health provisions in the House-passed and Senate committee bills, link here to the KFF side-by-side comparison of provisions relating to: Medicaid | Affordable Care Act | Medicare | Health Savings Accounts.
More than 250 hospital leaders flew into DC last week to lobby against the bill’s limits on provider taxes.
The Senate Finance title makes permanent three business tax breaks that would expire after 2029 in the House version: “the research and development deduction, a provision expanding debt interest write-offs, and expensing for new equipment including most machinery and factories.”
Senate Finance scaled back a House proposal to increase a business deduction for closely held businesses. The House would increase it to 23% from 20%. The Senate would keep it at 20% but make it permanent.
Senate Finance continues the current $10,000 cap on State and Local Tax (SALT) deductions (as a placeholder), whereas the House bill would raise the cap to $40,000—a level several House Republicans say is essential for their support of the final bill). Read more.
Wealthy universities would face a lower tax hike on their endowments: The House bill called for a top rate of 21% on the wealthiest universities, but the Senate’s draft has a top rate of 8%.
Senate bill guts clean energy tax incentives, although the solar and wind phaseout timetables are longer than under the House bill (but the deadlines may still be too tight to utilize the credits).
New deduction for car loan interest would apply to new vehicles only--unlike the House which applies to new and used.
The Senate has smaller increases in the Child Tax Credit, with the credit going up from $2,000 to a $2,200 permanent credit (less than the $2,500 temporary credit in the House bill).
The Senate bill boosts the new charitable deduction for people who don’t itemize to $2000 (compared to $300 in the House bill).
The Senate version omits a House proposal to impose taxes on large private foundations.
The Senate bill raises the seniors deduction to $6,000, compared to $4,000 under the House bill.
Senate bill limits the deductions for tips (deduction limit: $25,000) and overtime pay (deduction limit: $12,500).
$5 trillion increase in the public debt limit (instead of the $4 trillion in the House bill); the Treasury estimates it could run out of borrowing authority as early as August.
Together with the legislation released by 8 other Senate committees, the Senate reconciliation bill would extend expiring 2017 tax cuts; add new tax breaks for businesses, seniors, tip and overtime income, and auto loan interest for U.S. cars; provide big spending increases for deportations, border security, and defense; and partially offset the trillions in lost revenues and new spending with cuts to Medicaid, SNAP (food stamps), student financial aid, clean energy tax credits, and other programs—with a net increase to the public debt of at least $3.4 trillion over 10 years.
Senate passage of Trump’s budget reconciliation bill will require support by 50 of the 53 Senate Republicans.
Senator Rand Paul (R-KY) already appears to be a solid “no” vote because the bill contains a $5 trillion increase in the debt limit which he opposes. More on the debt limit.
Senator Ron Johnson (R-WI) could be a “no” vote, due to concerns about deficit increases in the bill, reports the NYTimes.
Senators Collins (R-ME), Hawley (R-MO), Moran (R-KS), and Murkowski (R-AK) have expressed concerns about the impact of the Medicaid cuts on their constituents.
Byrd Rule Cuts Provisions: The Senate’s Parliamentarian has ruled that the following 10 provisions in the Senate committee drafts violate the Senate’s “Byrd Rule” because they are not “budgetary” or their budgetary effect is “merely incidental” to a policy change (and therefore have to be redrafted or dropped from the bill):
A provision cutting federal spending for SNAP (food stamp) benefits and shifting costs onto the states;
A provision barring people living in the country illegally from receiving nutrition assistance;
A provision to allow federal officials to update farm payment programs;
A provision limiting courts’ ability to hold Administration officials in contempt of court by requiring litigants suing the Administration to pay potentially enormous bonds before a court could use its contempt power to enforce injunctions or other rulings;
A provision to reduce to zero funding of the Consumer Financial Protection Bureau from Federal Reserve balances;
A provision that would penalize the Pentagon (with a spending cut) if they fail to tell Congress by a specified deadline how they intend to spend the $150 billion increase included in the massive budget bill. (This underscores the fiscal dangers of allocating massive funds to agencies outside of the annual appropriations process.)
A provision to cut funding for the Office of Financial Research;
A provision to repeal the Biden EPA’s tailpipe emissions rule for model years 2027 and later; and
A provision to merge the Public Company Accounting Oversight Board, the U.S. audit watchdog, into the Securities and Exchange Commission.
Despite the apparent deference to the Parliamentarian on the Byrd Rule, Senate Republicans last week—in a huge snub to the Senate’s longstanding rules and precedents—ordered the nonpartisan revenue scorekeepers at the Joint Committee on Taxation to score extension of the 2017 tax cuts as having zero cost.
Other notable developments relating to budget reconciliation:
Medicaid cuts impact millions: The Congressional Budget Office (CBO) estimates that the House bill would reduce federal Medicaid spending by $793 billion over ten years and 10.3 million fewer people would be enrolled in Medicaid in 2034—including 1.3 million people with Medicare, otherwise known as “dual-eligible individuals.”
CBO estimated last week that the House-passed reconciliation bill—including the bill’s dynamic effects on the economy—would increase the public debt by $3.4 trillion over 10 years.
Fact Checking GOP’s Baseless Attacks on CBO: Tim Scott’s video attacking CBO: Nine errors in 60 seconds. Every claim made by the Republican senator to ridicule the nonpartisan agency turns out to be false.
Rural exclusion? Some GOP Senators are considering adding provisions to shield rural and teaching hospitals from proposed limitations on state provider taxes. Read more.
Affordable Care Act Subsidies Drop After 2025: Neither version addresses the scheduled reduction in ACA premium subsidies after 2025 and few people are aware of the coming reductions.
Student Financial Aid Limits Hit Medical Schools, Other Grad Schools: The Senate HELP Committee bill includes a new cap on how much people can borrow for medical school and other professional programs that is “well below the sticker price most students are facing.”
Anti-Climate Ideology Run Amok: A little-noticed Senate provision would force the government to undo billions of dollars in electric-vehicle investments made by the U.S. Postal Service, causing a colossal waste of money and a huge financial setback for USPS. Postal Service officials told lawmakers, “It will cost the Postal Service $1.5 billion of funds that we desperately need in order to serve the American people, and it will seriously cripple our ability to replace an aging and obsolete delivery fleet.”
A KFF poll released last week found that the GOP budget bill is viewed unfavorably by a nearly 2-to-1 margin.
What happens now? Senate GOP leaders will drop (or revise) provisions that violate the Byrd Rule, and make other changes to the draft committee titles needed to secure 50 GOP votes for the package. If the package passes the Senate, House and Senate GOP leaders and committee chairs will negotiate a compromise version that can pass under the razor thin GOP majorities in the House and the Senate. All of this must be completed prior to Congress’ August recess, with the Treasury possibly running out of borrowing authority in August (requiring enactment of the debt limit increase contained in the bill).
(The author managed budget reconciliation and debt limit legislation as General Counsel at the Senate Finance Committee.)
(3) APPROPRIATIONS: House will continue this week marking up FY 2026 bills—even though a stopgap continuing resolution (CR) is virtually certain to replace the bills.
On a parallel track to the budget reconciliation bill, the House Appropriations Committee is continuing to markup its FY 2026 spending bills.
The full committee will complete action on Agriculture-Rural-FDA on Monday.
The Legislative Branch bill will be marked up by subcommittee on Monday and full committee on Thursday.
The full committee will mark up Homeland Security on Tuesday.
Despite the House Appropriations Committee’s ongoing action, there has been no effort to include Democrats in negotiations. Since passage of appropriation bills requires 60 votes in the Senate (and support by Democrats), the absence of bipartisan negotiations on funding levels suggests the FY 2026 bills are going nowhere and the government will be funded in the new fiscal year by a series of stopgap continuing resolutions—continuing the serious erosion of Congress’s control over federal spending. Continuing resolutions lack the account-by-account funding details and programmatic directives normally included in appropriation bills.
(4) TARIFFS AND THE ECONOMY:
Who will pay tariff taxes? Trump’s Chief Economist, Stephan Miran, argues—unrealistically—that U.S. importers will not pass along the cost of tariffs to consumers. Politico reported last week on Miran’s theory: “Foreign manufacturers will have to lower their prices to accommodate tariff rates, Miran believes. If they don’t, then U.S. importers will turn to factories in other markets rather than absorbing the cost of tariffs themselves.”
Retail sales slide: Commerce Dept. reported last week that retail sales declined by 0.9% month-to-month.
Last week the Federal Reserve left interest rates unchanged for a fourth straight meeting, with Fed Chair Powell saying policymakers want to wait and see how economic data evolve. “Fed officials boosted their inflation outlook and cut their growth forecasts” due to tariffs.
(5) MAJOR DEVELOPMENTS ACROSS GOVERNMENT:
The Social Security and Medicare Trustees released their annual reports on the financial status of the trust funds: (Social Security Report | Medicare Report). Briefly, the Social Security Trust Fund (OASI) and the Medicare Hospital Insurance (HI) Trust Fund are both only 8 years from insolvency—projected to have insufficient funds to fully cover their obligations in 2033. At that time, Congress will have to make up the shortfalls from general revenues or reduce payments. There are numerous reforms that can be made to avoid this outcome. See, for example, the proposals of the Domenici-Rivlin budget task force.
The Trump Administration has resumed layoffs, this time targeting the National Archives staff. Employees have warned about impacts on records retrieval.
Department of Education: Last week, Appropriations Democrats called on DoEd to “immediately cease (the) illegal plan to transfer career and technical education program responsibilities to the Labor Department.”
Deportation backlash: Last week saw industry leaders in agriculture, meatpacking, hotels and restaurants pleading with the White House for relief from on-again, off-again immigration raids. Last week also saw economists warning that the U.S. could lose more immigrants than it gains for the first time in 50 years, weighing on economic growth and fueling inflation.
Judge orders many NIH grants restored: A Reagan-appointed federal judge last week ruled that the Trump administration’s canceling of federal health grants over their connections to “gender ideology” and “diversity, equity, and inclusion” was unlawful and void and directed that the funds be made available.
Environmental Protection, National Labs, Disaster Prep Slowdown: “Lockdowns of spending and an absence of guidance from political appointees are leaving Environmental Protection Agency scientists unable to publish their research, preventing some Energy Department officials from visiting their department’s laboratories and forcing the cancellation of disaster planning exercises at the Federal Emergency Management Agency,” reports Politico.
(6) DEMOCRACY AND THE RULE OF LAW AT RISK:
GOP dismissing Congress’s constitutional authority over appropriations: In a move that would be unthinkable during any other Administration, House Appropriations Committee Republicans voted down an amendment reaffirming Congress’s constitutional authority over appropriations. Watch video.
Trump Undermines Watergate Ethics Reforms: Congress built a system 50 years ago to prevent another Nixon. Trump seems determined to dismantle those rules.
About the author: Charles S. Konigsberg, J.D., served as Assistant Director at the White House Office of Management and Budget for three successive Budget Directors; General Counsel at the U.S. Senate Finance Committee; Minority Chief Counsel at the U.S. Senate Rules Committee; Staff Attorney at the U.S. Senate Budget Committee; Director of Congressional Affairs at CFPB and AmeriCorps; and Staff Director of a national bipartisan budget task force.
He is author of the book, Trillions: A Primer on Federal Spending, Taxes, the U.S. Debt Ceiling, and Fiscal Law. Click here to purchase.
He is also Publisher of Appropriations.com which tracks appropriation bills; and GovBudget.com which tracks the Reconciliation Bill and major federal developments, by subject area, each day.
Speaking engagements and press interviews can be scheduled by calling: (202) 818-8578 or (301) 509-5688. Email comments, suggestions, and questions to: ckonigsberg@capitolpublicpolicy.com.