Senate Passes 2018 Budget Paving Way For $1.5 Trillion In Tax Cuts, Sending Yields, Dollar Sharply Higher
Posted by Tyler Durden on October 20, 2017 2:13 am
Tags: 115th United States Congress, Bob Corker, Budget Committee, Business, congress, John McCain, Medicare, Michigan, Mitch McConnell, Politics, Presidency of Barack Obama, reconciliation, republican party, Senate, Social Issues, united states, United States federal budget, United States federal legislation, United States fiscal cliff, US Federal Reserve, US government
Categories: 115th United States Congress Bob Corker Budget Committee Business Congress Economy John McCain Medicare Michigan Mitch McConnell Politics Presidency of Barack Obama reconciliation republican party Senate Social Issues United States United States federal budget United States federal legislation United States fiscal cliff US Federal Reserve US government
Senate republicans took a major, if relatively easy, step toward passing Trump’s tax plan on Thursday night with the critical passage of a budget blueprint that would protect a $1.5 trillion tax cut from a Democratic filibuster. Senators narrowly voted 51-49 to pass the fiscal year 2018 budget after a several hour-long marathon on the Senate floor. The budget resolution could also pave the way for opening up the Arctic National Wildlife Refuge in Alaska to oil exploration by ensuring that drilling legislation can pass with only Republican votes according to the NYT.
With a 52-seat majority, Mitch McConnell had a narrow path to getting the 50 votes needed to clear the budget through the upper chamber. But GOP leadership caught a break this week when Sen. John McCain, a holdout over defense spending, announced he would vote yes, and Sen. Thad Cochran, recovering from health issues, returned early to Washington.
The budget’s passage could keep Republicans on track to pass a tax package late this year or early in 2018. That said, there are still plenty of possible complications, not least of all bickering within the GOP over the final shape of the tax package – where the fate of state and local tax exemptions has still to be decided – as the following Goldman flowchart shows: the steps that were successfully passed tonight are shown in green.
The House could pick up the Senate-passed budget as early as next week and give final approval to parliamentary language protecting the Republicans’ coveted tax effort. If House Republicans instead insist on negotiating a compromise that melds the Senate and House budget plans, tax legislation could be delayed.
“Passing this budget is critical to getting tax reform done, so we can strengthen our economy after years of stagnation under the previous administration,” said Senate Majority Leader Mitch McConnell (R-Ky.).
The Senate gave its approval to the budget blueprint on Thursday night after considering a flurry of amendments, a tedious process that gives the minority party an opportunity to force the majority to endure politically difficult votes. One Democratic amendment that was rejected sought to stop tax cuts from going to the top 1 percent; another would have restored cuts to Medicare.
The Senate approved the budget after the previously discussed so-called vote-a-rama, a legislative whirlwind in which amendments are considered one after another
Giving tonight events an aura of fatalistic determinism, Senator Lindsey Graham, and a member of the Budget Committee, said “this is the last, best chance we will have to cut taxes,” and warned that the consequences would be ruinous if the party failed. “That will be the end of us as a party,” he said, “because if you’re a Republican and you don’t want to simplify the tax code and cut taxes, what good are you to anybody?”
Where things get laughable is when one considers the context of what just happened: In Congress, the annual budget resolution provides an outline of federal spending and revenues. The Senate’s blueprint, for the 2018 fiscal year that began Oct. 1, claims to achieve a balanced budget within a decade, assuming greater economic growth and using an accounting method that excludes Social Security. In order to erase projected deficits, it calls for trillions of dollars in spending cuts over the coming decade.But the cuts exist only on paper, without legislation to achieve them.
And as the GOP predicts that by 2028 US government spending will equal revenues, here is what will really happen:
Meanwhile, as Republicans played with excel’s “goalseek” function, Democrats sounded the alarm, warning that the aspirational cuts in the budget plan called for slicing more than $1 trillion from Medicaid and about $470 billion from Medicare over a decade. Unfortunately for Democrats, they have exactly zero say in the matter: Though Democrats have pleaded to have more say in the tax overhaul, parliamentary language in the budget resolution would allow Republicans to pass a tax bill without any cooperation from the minority party.
“Passing this budget is not a requirement for passing tax reform,” said Senator Gary Peters, Democrat of Michigan. “Passing this budget is only a requirement to pass a tax bill with as few votes as possible, without input or buy-in from members of the minority.”
For Republicans, the budget debate provided a moment to showcase their main goal in the coming months, which according to the NYT is approving an overhaul of the tax code for the first time in decades, which they hope will lead to greater economic growth. But before they can move ahead with a tax bill, the House and Senate need to agree on the same budget resolution. The House approved its budget resolution, which had long been stalled, on Oct. 5. The House budget also lays the groundwork for a tax bill, but, unlike the Senate’s approach, it calls for the legislation to not add to the deficit.
The House budget resolution also seeks more concrete action when it comes to cutting spending, instructing committees to come up with legislation that would produce at least about $200 billion in savings.
However, according to The Hill, a House GOP source says the amendment seems sufficient to avoid a conference committee between the two chambers, and allow the House to simply pass the Senate resolution.
Ultimately, however, the only reason why the vote passed so easily is because as the Hill explained, it doesn’t matter, and was merely viewed as a mere vehicle for passing tax reform
“This is the biggest hoax cast upon the American people ever that this budget process even exists. The only thing about this that matters is in preparation for tax reform,” said Sen. Bob Corker (R-Tenn.), who voted for the budget. Corker noted bluntly that he believes the budget doesn’t have a real-world impact and if he was chairman of the Budget Committee he would disband it. When a staffer told him he was about to miss an amendment vote, he shot back: “yeah, on a vote that doesn’t matter.”
McCain, explaining why he would support the budget, added: “At the end of the day, we all know that the Senate budget resolution will not impact final appropriations.”
Then again, all of these nuances were lost on the shotgun headline scanning algos, which read that Trump’s tax plan is one step closer to passage and sent both the USDJPY…
… and 10Y yields surging…
With gold lower…
With Dow Futs up over 100 points…
… and the Fed cursing their fate, because as Dudley explained yesterday, the last thing the feed needs right now as it is desperate to avoid tightening fast, is a burst of wage inflation, something which Trump’s tax proposal, if it passes, will promptly lead to, crushing the Fed’s carefully laid plan to take years and years in unwinding it balance sheet and rising rates.