Congressional Republican leaders remain miles apart on tax and spending plans after agreeing to disagree on key elements. They’ve essentially kicked the toughest decisions down the road.
The budget resolution that the House cleared last week includes instructions that differ widely from the Senate's version when it comes to spending cuts.
The House would be required to cut at least $1.5 trillion over 10 years, with the House Ag Committee ordered to find $230 billion of that. The Senate Ag Committee would be required to cut as little as $1 billion, which is essentially a placeholder figure.
“We will find savings, but we haven't pegged a number yet,” Senate Ag Committee member John Hoeven, R-N.D., told Agri-Pulse.
Leaders of the Senate and House Ag committees have been talking about their reconciliation plans for some time but it’s not clear whether they will proceed with separate numbers or try to agree first on a common number.
Agriculture Committee savings almost certainly will come out of the Supplemental Nutrition Assistance Program, the biggest pot of money by far that those committees command, and some members want to use some of the savings to shore up farm bill programs.
“As tough as it was getting a budget resolution … that was the easy part of this exercise,” said long-time federal budget analyst Bill Hoagland, senior vice president of the Bipartisan Policy Center.
He believes Republicans will ultimately have to pass an extension of expiring provisions of the 2017 Tax Cuts and Jobs Act to give themselves more time to reach agreement.
Taxes: A long wish list of new tax cuts to fit under cap
The top priority for lawmakers is extending Tax Cuts and Jobs Act provisions that expire at the end of this year. Those include reduced income tax rates, the 20% deduction for pass-through business income known as Section 199A, and a doubling of the estate tax exemption. Republican senators and President Donald Trump want to make the provisions permanent.
To that end, the Senate GOP amended the budget resolution to use what’s called a current policy baseline, which assumes there is no revenue loss from extending the 2017 tax cuts. Federal deficits would continue to increase, however, which is a concern for hard-line conservatives in the House who say they don’t want to increase the deficit.
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The resolution would allow an added $1.5 trillion in reduced tax revenue over 10 years. There’s a lot on Trump’s and the GOP wish list to fit within that $1.5 trillion, however. Just extending TCJA isn’t enough for Trump or for many in the business sector, including agriculture, and urban lawmakers demand an increase in the $10,000 cap on state and local tax deductions in TCJA.
Exempting Social Security income from taxes, a Trump proposal, would cost $1.5 trillion all by itself, so lawmakers would likely consider a mix of limited tax benefits to fit within the cap.
For example, limiting the exemption to beneficiaries with no more than $100,000 in income would reduce the cost of the exemption to $489 billion over 10 years, according to the Penn Wharton Budget Model.
Similarly, there are ways to fit other Trump and GOP priorities within the $1.5 trillion limit.
Exempting taxes on tips but limiting the exemption to specific sectors such as food service, entertainment, taxis and courier services would cost $21 billion. Allowing a deduction for overtime but limiting it to $25,000 per person would cost the government $187 billion in revenue.
Raising the state and local tax deduction from $10,000 to $50,000 per person would cost $460 billion.
Extending business tax provisions that have expired or are being phased out would cost $648 billion over 10 years, according to the Tax Foundation. Those provisions include the 100% bonus depreciation, which started phasing down in 2023, and research and development expensing that expired at the end of 2021. Restoring R&D expensing is a key priority for agricultural equipment manufacturers and other agribusiness companies.
It's important to remember that the $1.5 trillion is a net figure and could theoretically include some tax increases. Senate Finance Committee member Chuck Grassley, R-Iowa, said at a town hall Tuesday that one of the proposals being considered is raising the top income tax rate from 37% to 39.6%. He said it would be intended to pay for expanding the child tax credit.
Biofuel incentive: Hard-liners determined to kill green energy benefits
Another potential sticking point will be how Republicans handle tax incentives included in the Inflation Reduction Act. While Trump and other Republicans have called for repealing the package, the messaging is now focused on a scalpel versus sledgehammer approach.
Specifically, Republican lawmakers representing biofuel and commodity states have been pushing leadership to preserve the 45Z tax credit for clean fuel producers. The incentive consolidates and replaces previous biofuel credits.
Some Iowa lawmakers have made clear that cutting 45Z would be a red line for the delegation, even as some House Freedom Caucus members continue to push against IRA provisions.
Last week, four Republican senators wrote to Senate Majority Leader John Thune, R-S.D., cautioning against a full-scale repeal of clean energy tax credits. Lawmakers have also introduced bipartisan legislation in recent weeks that would strengthen 45Z rather than repealing it, demonstrating the widespread support for some of these incentives.
Instead of eliminating the credit, it’s possible 45Z could be reformed to meet some of the calls from the biofuel space. For example, lawmakers have introduced legislation and voiced support for extending the credit from the current three-year period to a full 10-year window.
SNAP: Could states be forced to help foot the bill?
Cutting the cost of SNAP is important not only to meet House GOP demands for spending cuts but also to fund increased spending on farm bill commodity programs and crop insurance.
Leaders of Senate and House Ag committees are talking about inserting portions of the farm bill, including elements of the commodity and crop insurance titles, into the reconciliation measure to solve the funding shortfall that has made it difficult to pass a new stand-alone farm bill.
Katie Bergh (LinkedIn photo)But cutting $230 billion from SNAP over 10 years would be difficult to do without reducing benefits. For example, the farm bill that the committee approved last May would have cut just $29 billion from future SNAP costs by restricting updates of the Thrifty Food Plan, the model of eating patterns used to set benefits.
Existing SNAP benefits would have to be cut by 22% to save $230 billion, according to Katie Bergh, a policy analyst with the Center for Budget and Policy Priorities, a left-leaning think tank.
USDA's 2021 TFP update increased SNAP benefits by an average of 27% in 2022 and will cost $250 billion over 10 years, says the Foundation for Government Accountability, a conservative think tank.
But increasing work requirements is a more likely goal. Bergh said raising the age limit for work requirements from 54 to 64, requiring parents of school-age children to start working for SNAP benefits and ending other exemptions would save $90 billion to $120 billion, about half the goal.
Another option, which the first Trump administration proposed, is to require states to share part of the program’s cost. That proposal risks hurting SNAP recipients during an economic downturn, Bergh said. "If states are required to pay a percentage of benefit costs when the economy is slowing or heading into a recession, state revenue would be falling at the same time," she said.
Still, Hoeven suggested that states may be asked to shoulder some program costs. "The states right now hand out food stamps, they provide them, but they have no skin in the game. They don't pay the bill,” he told Agri-Pulse, without citing detail of what the GOP might ultimately do.
Medicaid: Targeted health program huge for rural areas
One of the biggest reconciliation battles Republicans face likely will be an effort to cut Medicaid. The budget resolution instructs the House Energy and Commerce Committee to find $880 billion in spending reductions, most of which is likely to come from health care programs.
A March 5 letter from the Congressional Budget Office detailed non-Medicare spending under the House committee’s jurisdiction to identify programs that could be trimmed to meet the spending targets. Over the next 10 years, Medicaid spending is projected to make up 93% of non-Medicare spending, or $8.2 trillion out of a total of $8.9 trillion.
This shows that it will be virtually impossible for the committee to reach $880 billion in cuts without significant reductions to Medicaid.
Rep. Jeff Van Drew (Official photo)Moderate Republicans in the House have indicated they would not support large cuts to the program, in part because of how difficult this would make holding the majority in mid-term elections. They also say that Trump has said he doesn’t want to cut Medicaid.
“This was just a resolution today. In plain English, doesn't mean all that much, it's just philosophical,” said Rep. Jeff Van Drew, R-N.J., following the resolution's passage. “We're saying, ‘don't screw us in reconciliation, because if we get screwed, we are not voting for it.'”
This does not mean moderate Republicans won’t back some reforms to Medicaid. Van Drew said he supports policy changes like imposing work requirements and verifying participant eligibility every six months instead of annually. Additionally, he said there should be guardrails on future Medicaid expansion.
The Foundation for Government Accountability, which advocates work requirements, says enrollment of able-bodied adults has increased from 6.9 million in 2000 to 34 million in 2024.
But rural health advocates highlight the disproportionate impact of Medicaid cuts to rural hospitals and communities. Rural communities tend to rely more on Medicaid, and hospitals in these areas tend to operate on tight or negative margins.
Specifically, advocates have warned that efforts to shift costs for Medicaid from the federal level to the state level would have a significant impact as many states would have to cut programs.
Republicans have floated policy proposals like restricting states’ ability to use provider taxes, block-granting and reducing the federal match for the cost of Medicaid expansion. These would all put greater financial pressure on states to support these programs.
Policy changes like increasing premiums, deductibles or co-payments could also lead to rural residents losing coverage or not being able to afford coverage, advocates have told Agri-Pulse.
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