The 119th Congress Faces Significant Challenges
Situation: President-elect Donald Trump and his allies have articulated ambitious plans for his administration’s first 100 days in office. Yet despite winning a Republican trifecta, lawmakers will face significant challenges to enacting its agenda.
In the House, Republicans will have a small majority because three lawmakers are expected to resign, bringing the number of Republican seats down to 217 at least until special elections occur in April. This means that until the seats are filled, House Republicans cannot lose a single vote on any legislation that is unanimously opposed by Democrats. Added to this is the fact that over the past two years there has been little Republican unity in the House where there is deep division between conservative and more moderate Republicans.
In the Senate, the Republican position is better with a 53 to 47 majority and a Vice President vote in the event of a tie. However, under the rules of the Senate it usually takes 60 votes to proceed to a vote on a bill when some senators want to continue debate forever, or filibuster. This means 41 senators can keep a bill from being voted on.
With Congress virtually tied we expect some of the legislation will be enacted using the reconciliation process which permits enactment of specific types of legislation with only a majority vote. However, reconciliation bills can only be used for legislation dealing with changes in revenue, spending, or debt limit. Furthermore, the Senate can consider no more than one bill addressing each of the subjects in a year.
This means that most of the legislation will need to be addressed on a bipartisan basis. As the first Counselor’s Corner for 2025 we thought it might be helpful to provide a general overview of some of the activity impacting financial advisors that we will be monitoring over the course of this coming year.
The Year Ahead: As we start the year Congress faces two immediate budgetary deadlines which can influence financial markets impacting financial advisors and their clients.
Debt Ceiling: The debt ceiling is the total amount of money that the United States government can borrow to meet its existing legal obligations. For the Treasury Department to borrow above that amount, the limit must be raised by Congress. The last time lawmakers raised the debt limit was June 2023. At that time, rather than raise the limit by a dollar amount, lawmakers suspended the debt limit through January 1, 2025. Raising or
suspending the debt limit does not authorize new spending or tax cuts; it merely acknowledges past budgetary decisions and allows the federal government to meet its existing obligations. For that reason and others, some have advocated doing away with the limit altogether like many other countries.
With default still on the table come January 1, 2025 the Treasury has the ability to delay a default for a few months using a process called “extraordinary measures.” The length of time the Treasury will be able to extend the deadline is not clear. President-elect Trump had tied a demand for dealing with the debt ceiling to the dispute over fiscal year 2025 government funding/appropriations. But Democrats and approximately three-dozen conservative Republicans rejected a plan that included a debt ceiling extension. House Speaker Johnson appears to be set to increase the debt ceiling using the reconciliation process. The problem is a group of conservative Republicans have never voted for any sort of debt limit increase making it more than enough to sink a partisan bill.
In time lawmakers have always raised the debt ceiling because the consequences of failure are bleak. Without action, the government would go into default, a first-ever situation that economic experts have said could be “catastrophic” for the economy and global markets. Even extended delays over addressing the debt ceiling and funding of the government may result in rocky markets the first quarter of 2025.
Government Appropriations/Funding: Each year Congress must make decisions to provide discretionary funding for a broad range of governmental activities pertaining to the upcoming fiscal year.1 Congress provides the funds through the passage of 12 appropriation bills. Budget authority provided in regular appropriations acts typically expires at the end of the fiscal year (September 30) when Congress has not passed one or more of the appropriation bills prior to the beginning of the fiscal year. Congress may use one or more continuing appropriations acts referred to as a “continuing resolution” to provide interim funding. If there is an interval when appropriations for a particular activity are not enacted into law this can cause a government shutdown.
Congress has not typically completed its consideration of all the appropriations bills before the start of the next fiscal year. In fact, since 1977 there have been only four times when all regular appropriations bills have been enacted before the start of the fiscal year. Typical of prior years, Congress failed to pass any of the appropriation bills prior to the beginning of fiscal 2025. Instead, in September Congress passed a continuing resolution providing for interim funding until December 20. As expected, another continuing resolution was passed on December 21 providing for interim funding through March 14, 2025. The March deadline coincides with the time Presidentelect Trump is also required to submit his fiscal year 2026 budget request.
The internal divisions by Republican lawmakers over spending and debt foreshadowed potential difficulties for Republicans as they try to navigate their narrow House margin and accomplish an ambitious domestic agenda. Given the limited number of bills that can be passed using the reconciliation process and the need to address the expiring tax provisions (which would include both spending and revenue aspect) the appropriation bill will likely need to be bipartisan.
Tax Legislation: In 2017 a Republican Congress enacted the Tax Cuts and Jobs Act (TCJA) which made major changes to both individual and business taxes. But most financial advisors are aware that many of the provisions were temporary and are scheduled to expire the end of 2025. On the campaign trail President-elect Trump proposed extending TCJA. The challenge facing lawmakers is the massive price tag associated with extending the tax cuts. The CBO recently estimated the cost of extending the TCJA’s tax provisions would increase the deficits by more than $4 trillion over the next 10-years.
In addition to extending TCJA, President-elect Trump proposed new tax benefits on the campaign trail. These included taxfree Social Security benefits, tip income, and overtime pay. Also among Trump’s promises are a tax-credit for expenses associated with caring for seniors, removing the $10,000 SALT cap, a deduction for interest paid on car loans and a lower 15% Corporate tax rate for U.S. manufactures. The Committee for a Responsible Federal Budget’s analysis of the Presidential candidate’s tax and spending plans found that Trump’s plan would further increase deficits over the next 10-years by $7.75 trillion.
The TCJA was enacted in 2017 along partisan lines using the reconciliation process. When Congress begins to consider large-scale tax reform, there will be pressure on members of Congress to look for and modify existing tax provisions that would raise revenue to offset tax cuts in other areas. The reconciliation process is likely going to be used to address the tax legislation this year, but the very narrow Republican majority in the House
will make enacting partisan tax legislation through reconciliation very difficult. Any proposal significantly increasing the deficit will likely lose some support from the three dozen conservative Republican members of the House. The following chart outlines some of the most impactful provisions that are set to expire:
