House Republicans Unveil Plan to Slash Taxes, Raise Debt Limit

Speaker Mike Johnson (Sipa USA)
Sipa USA
By Yuval Rosenberg

Good evening. The Senate on Wednesday confirmed Tulsi Gabbard as director of national intelligence, delivering a win for President Donald Trump in a 52-48 vote that fell along party lines with the notable exception of Republican Sen. Mitch McConnell, who joined with Democrats in opposing the nominee. “The nation should not have to worry that the intelligence assessments the President receives are tainted by a Director of National Intelligence with a history of alarming lapses in judgment,” McConnell said in a statement.

The Senate also voted along party lines to advance the nomination of Robert F. Kennedy Jr. to be the nation’s top health official. A final confirmation vote is expected on Thursday.

Here’s what else is happening.

House Republicans Unveil Plan to Slash Taxes, Raise Debt Limit

House Republicans unveiled their blueprint for enacting much of President Donald Trump's agenda, including steep spending cuts, an extension of expiring tax cuts, an increase in the federal debt limit and new border, defense and energy measures. Yet even as House GOP leaders look to push ahead with their budget plan, they still face conservative demands for additional spending cuts and lingering intraparty divisions over whether to employ a one-bill strategy or split their priorities into two bills. Senate Republicans, meanwhile, are pressing ahead with their own approach, which involves two bills.

The 45-page proposal released by the House Budget Committee on Wednesday says that the House Ways and Means Committee can pursue tax cuts that increase the deficit by as much as $4.5 trillion over 10 years and would increase the nation's $36.1 trillion borrowing limit by $4 trillion. It also directs other House committees to slash $1.5 trillion in spending while allowing for $300 billion in increased spending on the military, border security and immigration enforcement. Most of the proposed savings, a minimum of $880 billion, would come from the Energy and Commerce Committee, which oversees Medicaid.

The plan also sets an overall goal of cutting $2 trillion over 10 years. It says that if the total combined deficit reduction falls below that target, the $4.5 trillion in room given to the tax-writing Ways and Means Committee "should be reduced by a commensurate amount to offset the difference."

"This budget resolution is a key step to start the process in delivering President Trump's America First agenda," House Speaker Mike Johnson said in a statement. "With nearly every House Republican directly engaged in this deliberative process, this resolution reflects our collective commitment to enacting the President's full agenda-not just a part of it. There will be ongoing debates and discussions in the coming weeks, and we remain focused on working through the process to deliver on our promises made to the American people. There's still much work to be done, but we are starting on the right path."

Ways and Means Chairman Jason Smith told reporters that the $4.5 trillion in room for tax cuts won't allow Republicans to do everything Trump wants, but he called it "a good first step."

House leaders plan to mark up their budget resolution on Thursday, even as the Senate began marking up its own two-step plan on Wednesday and will continue tomorrow. The Senate resolution would provide $175 billion for border security and $150 billion extra in defense spending but leave aside the tax elements for later.

Senate Budget Chair Lindsey Graham said the Senate is moving ahead because there's an urgent need for border funding. "To my colleagues in the House, I hope you can pass one big, beautiful bill meeting the priorities of President Trump and what we've been promising to do as a party, but we've got to move on this issue," he said in opening remarks at the Senate budget panel's session today, adding, "I hope you will consider what we do if you cannot produce the one big, beautiful bill quickly."

House hardliners threaten to revolt: There are signs that the House may struggle to produce that one bill. Politico reports that some House Freedom Caucus members panned the House budget resolution and are pushing for at least $500 billion more in spending cuts and for a guarantee that work requirements will be included for Medicaid and other programs.

"Critically, two of those skeptical conservatives sit on the panel and could tank it in committee if they side with Democrats and vote against advancing the budget resolution - and Reps. Ralph Norman (R-S.C.) and Chip Roy (R-Texas) say they're not on board yet," Politico's Meredith Lee Hill reports.

Yet as Republicans continue to argue over the proper balance of spending reductions and tax cuts, with the aim of creating a package that can clear both the House and Senate, Johnson told reporters Wednesday evening that he's not changing the resolution ahead of the planned committee vote.

The GOP divide over strategy extends to the executive branch. As Politico reports: "Vice President JD Vance, White House policy chief Stephen Miller and budget chief Russ Vought are among those in the Trump administration pushing for a two-bill approach on reconciliation, while Treasury Secretary Scott Bessent is pushing for one, people familiar with their thinking, granted anonymity to share it, said Wednesday."

Warnings of Medicaid cuts and other pain: Democrats, meanwhile, are slamming the House plan, saying that it would hurt average Americans in order to provide tax cuts for the wealthy.

"Here's the simplest way to understand the Republican budget bill: 11% average annual cut to Medicaid. $250,000 average annual tax break for the richest 0.1%," Michael Linden, a former Biden administration budget official, posted on X.

Rep. Brendan Boyle, the top Democrat on the House Budget Committee, said in a statement that the Republican plan betrays the middle class: "Their proposal slashes critical programs that millions of hardworking Americans rely on, all while adding trillions of dollars to the deficit to bankroll massive giveaways for giant corporations and billionaires like Elon Musk."

Boyle and budget watchers also decried what they called gimmicks and fantastical growth projections Republicans used to trim the overall cost of their proposal. For example, the GOP resolution assumes a higher 2.5% economic growth rate over the next decade to generate $2.6 trillion in additional revenues. "This lazy gimmick is a staple of budget proposals trying to show fake savings," budget expert Jessica Riedl wrote on X. And the resolution includes $1.8 trillion in undefined future savings from discretionary spending. "This budget will hike deficits (when stripped of gimmicks)," Riedl concluded. "Tax cuts will eventually pass but the spending savings face major barriers."

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, which advocates for deficit reduction, said Republicans should find more savings or shrink their tax cuts and new spending. "This reconciliation plan would damage the fiscal health of the country and present risks we should not be willing to take," she said in a statement.

The bottom line: Budget hawks are warning that the blueprint, as released, would add trillions more to the debt. As Johnson indicated, Republicans still have a lot more work to do if they want to overcome the divide between those in the party who want more tax cuts and those who want to slash more spending.

Inflation Jumps Back to 3% in January

Consumer prices rose at a faster-than-expected pace at the start of the year, according to data released Wednesday by the Labor Department. The consumer price index climbed 0.5% from December to January, contributing to a 3.0% rise over the past year. The results ran hotter than economists' expectations for 0.3% monthly and 2.9% annual increases.

The price hikes were widespread and include a big jump in the cost of eggs, which rose 15.2% from December and 53% from a year ago, driven by an intensifying outbreak of avian flu. The surge in egg prices helped push grocery prices 0.5% higher, the largest monthly increase in that category in more than two years.

The core price index, which strips out volatile food and fuel prices to give a better sense of the underlying trend, rose 0.4% on a monthly basis in January, the largest monthly increase in nearly two years. On an annual basis, core prices were up 3.3%.

Core prices were driven in part by an increase in the cost of shelter, including home insurance and lodging, which rose 0.4% from December. The long-term trend for shelter is cooling, though, easing to a 4.4% increase over the last year, matching a three-year low.

Powell says more work to do: Federal Reserve Chair Jerome Powell, appearing before a House committee Wednesday to provide his semi-annual update, told lawmakers that the Fed still has its work cut out for it.

"I would say we're close, but not there on inflation," Powell told the House Financial Services Committee. "Last year, inflation was 2.6% - so great progress - but we're not quite there yet."

Powell added that the recent data bolsters the Fed's current stance on interest rates. "We want to keep policy restrictive for now," he said.

Powell also cautioned against reaching any major conclusions from a few data points. "We don't get excited about one or two good readings, and we don't get excited about one or two bad readings," he said.

Trump casts blame: President Donald Trump blamed the hotter-than-expected numbers on his predecessor, writing "BIDEN INFLATION UP!" on his social media network. He also called for a cut in interest rates, ramping up pressure on the Fed, though without naming the central bank or its leader explicitly.

"Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs," Trump wrote. "Lets Rock and Roll, America!!!"

National Economic Council Director Kevin Hassett said the president's comments were directed more at his own administration than the Fed. "We're taking aggressive actions to lower interest rates," Hassett said, citing spending cuts, tax cuts and deregulation. Some economists have questioned the efficacy of those strategies, noting that tax cuts and Trump-favored tariffs could push prices higher.

**What the experts are saying: **Analysts generally had little good to say about the January inflation numbers.

"The long national nightmare of inflation isn't over yet for consumers, businesses, and investors," Chris Rupkey, chief economist at FwdBonds, said Wednesday, per CNN. "There could be some seasonality that pushes prices up at a faster clip in January, but today the news for [Federal Reserve] officials is all bad."

Paul Ashworth, chief North America economist at Capital Economics, said progress against inflation seems to have stalled. "Inflation has now been around these rates for some time and clearly isn't coming down decisively any more," he said, per The Wall Street Journal.

Moody's chief economist Mark Zandi, who has been relatively dovish on inflation in recent months, noted that inflation tends to pick up in January, when businesses raise prices at the start of the new year. Still, "the disinflation (slowing in inflation) we've enjoyed since summer 2022 is over," he wrote. "It is too early to fire off red flares on inflation, but a yellow flare is apropos."

Deficit Hits Record $840 Billion in First Four Months of Fiscal Year 2025

The federal budget deficit came to $840 billion from October 2024 through January 2025, the Treasury Department announced Wednesday. The deficit for January was $129 billion.

Total receipts over the four-month period were $1.6 trillion, while total outlays were $2.4 trillion, resulting in a budget gap that is a record for the period. Receipts were 1% higher than a year ago, while outlays were 15% higher, driven by increased spending on healthcare, veterans and debt interest. The calendar also played a role in the deficit increase, as the timing of payments shifted relative to last year.

While the deficit was not unexpected, its record size may influence the policy debates currently occurring in Washington. "The continued widening in the deficit, despite strong economic growth and sustained employment gains, showcases the magnitude of the job that Treasury Secretary Scott Bessent faces as he seeks to get the gap down to 3% of gross domestic product, from 6.4% in 2024," says Bloomberg's Chris Anstey. "It may also strengthen resolve among fiscal hawks in the congressional Republican conference to press for deep spending cuts in return for backing the major tax-cut package President Donald Trump is seeking this year."

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