House Republicans' Next Big Fight

Plus: Republicans’ IRS cuts would cost $114 billion ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ [The Fisc](   By Yuval Rosenberg and Michael Rainey Happy Monday! Last week’s congressional drama is finally over. This week’s congressional drama is about to begin. Here’s what you need to know while waiting for the college football championship game to start. He finally got the gavel (Reuters) House Republicans' Next Big Fight As messy and dramatic as it was, last week’s lengthy fight over the House speaker’s gavel was supposed to be the easy part. Now, newly elected House Speaker Kevin McCarthy (R-CA) is poised to face his next test. With members having finally been sworn in, the House is set to vote Monday night on its first order of real business: adopting a rules package laying out how the 118th Congress will operate. After that, Republicans will look to repeal billions in new funding for the Internal Revenue Service provided by Democrats last year. As you might expect, there could be more drama ahead. McCarthy won the speaker’s gavel late Friday night after making a host of concessions to the hardline conservatives who had been withholding their support. "I ran out of things I could even imagine to ask for," Rep. Matt Gaetz (R-FL), one of the holdouts, told CNN. Those concessions could raise the chances of risky budget and debt battles over the coming year. Already, they have spurred some grumbling from moderates. Rep. Tony Gonzalez (R-TX) said he will vote against the rules package, and Rep. Nancy Mace (R-SC) told CBS News’s “Face the Nation” on Sunday that she is “on the fence” about it given the secretive dealmaking that created it. “I like the rules package. It is the most open, fair, and fiscally conservative package we've had in 30 years,” she said. “I support it, but what I don't support is a small number of people trying to get a deal done or deals done for themselves in private, in secret, to get a vote or vote present. I don't support that.” The Republican majority’s new rules: The rules package includes [some significant changes](. Perhaps most notably, it restores the power of any single member to force a vote to oust the speaker — a change that could weaken McCarthy and result in instability for the House. The package also includes a number of fiscal measures meant to reduce federal spending and forestall tax increases. * A switch from PAYGO to CUTGO: The GOP rules replace the pay-as-you-go (PAYGO) requirements used by the last Congress, which call for any increase in mandatory spending or reduction in revenues to be offset by other spending cuts or revenue increases. The new rules would switch to “cut as you go,” or CUTGO, which would prohibits net increases in mandatory spending over a five- or -ten-year budget window and nix the use of revenue increases to offset new spending. * An increased threshold for approving tax rate increases: The GOP rules would require a three-fifths supermajority to approve any increase in tax rates. * Eliminating an automatic increase of the debt limit: The GOP rules would strike what’s known as the “Gephardt rule,” a provision named for former Democratic leader Dick Gephardt of Missouri, which tied automatic debt limit increases to the passage of a House budget resolution. The Republican change would mean that a debt limit increase would have to come via a separate vote. * The use of dynamic scoring: Republicans want to restore a rule they have enacted in the past requiring the Congressional Budget Office and Joint Committee on Taxation to factor in macroeconomic feedback effects into their analyses of legislation. Setting up future fights: The rules package does not actually contain some of the most important concessions McCarthy made to conservatives, such as a commitment to pursue a budget that would balance within 10 years and cap spending at fiscal 2022 levels. McCarthy reportedly also agreed to require spending cuts in exchange for any increase in the federal government’s debt limit, a hike that will be needed later this year. Punchbowl News [reported]( Monday morning that some of those promises are laid out in a separate, secret three-page addendum to the 55-page rules package. “This pact includes the most controversial concessions McCarthy made in order to become speaker – three seats on the Rules Committee for conservatives, freezing spending at FY2022 levels, a debt-ceiling strategy, coveted committee assignments and more,” Punchbowl said. The commitment to cut spending to 2022 levels would mean cuts of more than $130 billion from the recently passed omnibus spending bill for fiscal year 2023, including potentially steep cuts to the defense budget, which most Republicans and many Democrats will likely oppose. Non-defense programs would also face massive cuts. The combined package would seem to have little chance of passing the Senate, making the votes even trickier for some House moderates. “The deal, if it holds, would largely impose the balanced-budget blueprint that former President Donald Trump’s budget director, Russ Vought, drafted and shopped to conservative lawmakers last year,” Roll Call [reports](. “It purports to cut some $10 trillion in projected spending over the next decade while producing a slight surplus in the final year — all while making room for $3.3 trillion in tax cuts. Complicating matters is that two of the largest pots of federal dollars, Social Security and Medicare benefits, would be spared the ax, leading to bigger cuts across every other program.” The GOP plan calls for $4 trillion in cuts from projected health care spending and another $2 trillion from programs including food stamps, child nutrition, student loans and agricultural price supports, Roll Call says. At the same time, the debt ceiling hike that will be needed in a matter of months now appears even more likely to prompt a dangerous showdown — or put McCarthy’s speakership in peril. When asked if he would look to oust McCarthy if the speaker allowed the House to pass a clean increase in the debt limit, Rep. Chip Roy (R-TX) told CNN: “I’m not going to play the what-if games on how we’re going to use the tools of the House to make sure that we enforce the terms of the agreement. But we will use the tools of the House to enforce the terms of the agreement.” The White House insists it won’t negotiate over the debt limit. “Congress is going to need to raise the debt limit without — without — conditions and it’s just that simple,” Press Secretary Karine Jean-Pierre told reporters Sunday. “Attempts to exploit the debt ceiling as leverage will not work. There will be no hostage taking.” ‘Just totally unrealistic’: The GOP hardliners’ budget demands are the stuff of fantasy, even according to experts whose jobs involve pushing for deficit reduction and a sustainable fiscal path. “Their specific ask of balancing the budget in 10 years is just totally unrealistic. It would take $11 trillion in savings,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told [The New York Times](. “I want to save more money than a lot of people,” she said. “But what they’re demanding is just not achievable.” The bottom line: Republicans hoping to push the rules package through can again afford to lose just four votes if Democrats remain united in opposition. The rules are likely to be adopted … and set up plenty of showdowns this year. Rep. Jason Smith Named House Ways and Means Chair Rep. Jason Smith (R-MO) on Monday won a three-way battle to become the next chairman of the powerful, tax-writing House Ways and Means Committee. The House Republican Steering Committee on Monday voted Smith to the job over two more senior members, Reps. Vern Buchanan (FL) and Adrian Smith (NE). Missouri’s Smith, 42, has been in Congress since 2013 and had been the top Republican on the House Budget Committee in the 117th Congress. Described by Bloomberg News as “decidedly populist and pro-Donald Trump,” he was reportedly seen as Speaker Kevin McCarthy’s pick for the key leadership post. “Smith, who advocates positioning the GOP as the party of the working class, represents a shift in Republican economic strategy away from the pro-free-trade, pro-business alignment it’s espoused for decades,” Bloomberg’s Laura Davison and Chris Cioffi write. Republicans Want to Slash the IRS Budget. CBO Warns It Would Cost Billions. The new Republican leaders in the House haven long vowed that their first legislative vote — expected later tonight — will be on a bill that would rescind most of the $80 billion in funding provided to the IRS by the Inflation Reduction Act. “On our very first bill, we’re going to repeal 87,000 IRS agents,” Rep. Kevin McCarthy promised back in September. Ever since Democrats pushed the funding increase through last year, GOP lawmakers have used the additional money for the IRS as a political talking point, charging — without evidence and contrary to the stated intent of the law — that the funding will be used to hire thousands of new agents whose main function will be to harass family households and small businesses. The name of the GOP bill, the Family and Small Business Taxpayer Protection Act, reflects that political framing. As plenty of critics have pointed out (see [here]( [here]( and [here]( the funding is intended for a variety of uses, including badly needed investments in technology and customer service, as well as making up for a wave of retirements at the tax agency — all of which are aimed at reducing cheating and increasing revenues. Any increase in auditing capabilities — desperately needed after years of budget cuts, most experts say — will be focused on the extremely wealthy, as Treasury Secretary Janet Yellen said last summer. (The recently revealed failure of the IRS to audit former president Donald Trump, in part because his tax returns are so complex, only emphasizes the point.) A potentially costly campaign: Whatever the political benefits of clawing back IRS funding — or attempting to do so, since the House bill has virtually no chance of becoming law anytime soon — the potential fiscal cost is clear. According to an [analysis]( released by the Congressional Budget Office Monday, the bill would result in the loss of $114 billion in revenue over a decade. The CBO estimates that the bill would rescind nearly $72 billion from the IRS, with Republicans allowing a few billion dollars of the new funding to be used for taxpayer services and modernization efforts. As a direct result of the clawback, revenues collected by the Treasury would be $186 billion lower over 10 years, producing a net loss of $114 billion. Noting the steep cost of the bill, the fiscal hawks at the Committee for a Responsible Federal Budget took Republicans to task for their plan. “According to the Congressional Budget Office (CBO), the bill would increase deficits by more than $100 billion over the next decade while encouraging tax cheating, expanding the tax gap, and undermining a policy supported by every President since Ronald Reagan, including Donald Trump,” CRFB [said](. Nevertheless, despite the potential real-world cost of the bill, Republicans vowed to press ahead. “We WILL repeal funding for the Administration’s 87,000 new IRS agents this week,” Rep. Nancy Mace (R-SC) [tweeted]( Monday. Rep. Jason Smith, the newly elected chairman of the House Committee on Ways and Means, said Monday that the effort to rescind funding from the IRS would be part of a larger effort to impede the tax agency. “Our first step is defunding the $80 billion pay increase Democrats gave the IRS to hire 87,000 new agents to target working families,” Smith said in a [statement](. “But we are not stopping there. If confirmed, the new IRS Commissioner should plan to spend a lot of time before our committee answering questions about the leaking of sensitive taxpayer information and an agency with a history of targeting conservative Americans. We will make it clear to every IRS employee that the Ways & Means Committee welcomes whistleblower efforts to uncover corrupt behavior at that agency.” Data Point of the Day Consumer expectations for inflation over the next year fell to an 18-month low last month, according to a survey released Monday by the Federal Reserve Bank of New York. “Median one-year-ahead inflation expectations continued to decline in December, falling by 0.2 percentage point to 5.0%, its lowest reading since July 2021,” the bank said in a [press release](. “In contrast, three-year-ahead inflation expectations were unchanged in December at 3.0%.” Yahoo Finance’s Jennifer Schonberger [says]( the survey is a positive sign for the Fed’s war against inflation: “The incremental drop in short-term expectations is encouraging for the Federal Reserve, which closely watches such expectations as a gauge of whether inflation is becoming entrenched in consumers' mindsets.” News - [McCarthy Concessions Raise Stakes on Budget, Debt Limit]( – Roll Call - [GOP House Takes First Swipe at IRS Money]( – Wall Street Journal - [Speaker Drama Raises New Fears on Debt Limit]( – New York Times - [Trump Urges Republicans to Use Debt Ceiling as Bargaining Chip]( – Bloomberg - [Approval of a Second Controversial Alzheimer's Drug Is Dividing Medical Experts]( – Washington Post - [More Than 7,000 Nurses Go on Strike Across 2 New York City Hospitals]( – ABC News - [Earth’s Ozone Layer Recovering as Damaging Airborne Chemicals Decline]( – Wall Street Journal Views and Analysis - [The McCarthy Concessions That Could Be Flash Points]( – Aaron Blake, Washington Post - [House Rules Package Would Make It Too Easy to Add More to the Debt]( – Committee for a Responsible Federal Budget - [The House GOP Rushes to Deliver for Its Fox News-Viewer Constituency]( – Philip Bump, Washington Post - [Defense Is Now a Republican Target]( – Wall Street Journal Editorial Board - [The House’s Republican Rebels Have a Point]( – David A. Hopkins, Bloomberg - [Who Is Afraid of the Big Bad Rate Pause?]( – Daniel Moss, Bloomberg - [Congress Has Not Stepped Up to Fight Covid-19 — or the Next Pandemic]( – Washington Post Editorial Board - [The White House Covid Censorship Machine]( – Jenin Younes and Aaron Kheriaty, Wall Street Journal - [The Coronavirus Is Speaking. It’s Saying It’s Not Done With Us.]( – Eric Topol, Washington Post - [Will Party Unity Tear Congress to Pieces?]( – Steven Pearlstein, Washington Post Copyright © 2023 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website or through Facebook. The Fiscal Times, 399 Park Avenue, 14th Floor, New York, NY 10022, United States Want to change how you receive these emails? [Update your preferences]( or [unsubscribe](