Trump-Approved Budget Plan Passes After Conservatives Fold

Speaker Mike Johnson (Reuters)
Reuters
By Yuval Rosenberg and Michael Rainey

Good evening! On this date in 1912, the Titanic set out on its first and only voyage, departing from Southampton, England, en route to New York. And in 1971, nine U.S. table tennis players arrived in China for a historic visit that started what became known as "ping-pong diplomacy." We've got details on a much different turn in U.S.-China relations, plus an update on the Trump legislative agenda.

House Adopts GOP Budget Plan After Conservatives End Their Revolt

House Republicans on Thursday narrowly adopted a budget framework needed to advance their plan to cut taxes and government spending, delivering a win for President Donald Trump and Speaker Mike Johnson.

"It's a good day in the House. I told you not to doubt us," Johnson told reporters after the vote, which he called "a big victory."

The 216-214 vote, largely along party lines, came after the speaker and other GOP leaders worked to assuage the concerns of conservative holdouts who had pressed to ensure that the final legislation will include steep spending cuts to go along with trillions of dollars in tax cuts. Those hardliners had forced a planned vote Wednesday evening to be postponed.

The budget outline, a compromise plan that was adopted by the Senate early Saturday, includes different sets of instructions for House and Senate committees. The House side set a target of $2 trillion in spending cuts to be paired with $4.5 trillion in new tax cuts and $300 billion in additional spending. The Senate side set a much lower floor for tax cuts - just $4 billion - and allowed $1.5 trillion in new tax cuts while also zeroing out the official cost of about $4 trillion in renewed tax cuts.

Some House conservatives initially refused to back that plan, saying they did not trust their colleagues in the Senate to deliver steep spending cuts.

Commitments on spending cuts: Johnson made a point of telling reporters that Trump "didn't have to call a single member to wrangle anybody on this thing." Trump had publicly pressed for the holdouts to fall in line, but it took more than that to secure the necessary votes.

Johnson reportedly told his fiscal hawks Wednesday night that they could remove him from the speakership if he fails to keep his promises. Johnson and Senate Majority Leader John Thune then publicly stated at a joint appearance Thursday morning that they are aligned on the goal of at least $1.5 trillion in spending cuts over 10 years. "We have a lot of United States senators who believe that is a minimum, and we're certainly going to do everything we can to be as aggressive as possible to see that we are serious about the matter," Thune said.

Rep. Chip Roy, a member of the House Freedom Caucus and one of the holdouts who expressed concerns about the budget blueprint, said in a statement that he "reluctantly" voted for it based on three specific commitments. Roy said the president had committed to "a minimum of $1 trillion in real reductions in mandatory spending," including Medicaid reforms targeting waste, fraud and abuse as well as a rollback of clean energy tax credits. He added that Johnson had committed to linking the level of tax cuts to the level of spending cuts in the final bill and that Thune had committed to a minimum of $1.5 trillion in spending reductions.

Those assurances were enough to win over most of the holdouts. In the end, Reps. Thomas Massie of Kentucky and Victoria Spartz of Indiana were the only Republicans to oppose the resolution.

The House Freedom Caucus said in a statement that its members and other fiscal conservatives had succeeded in putting Congress on a path to pass a fiscally responsible bill. "Today's vote will allow us to proceed with that framework - and given these new commitments, anything that falls short will face serious problems in the House," the group said.

Just the first step: Having the House and Senate adopt the same budget resolution is just the first step in the reconciliation process Republicans are using to enact a massive package that will include more money for defense and border security in addition to the tax and spending cuts. The resolution was the easy part. Thursday's House vote now sets up weeks or months of additional negotiations on the final legislation, and those talks are likely to be complicated by more Republican infighting.

Democrats don't have the votes to derail the GOP package, but they have criticized it vehemently, arguing that Republicans will hurt working families, slash Medicaid and cut food stamps all so they can deliver more tax breaks for the wealthy. Some Republican senators have also expressed concern about potentially hundreds of billions of dollars in cuts to Medicaid.

Making changes to Medicaid: Johnson insisted to reporters that Social Security, Medicare and Medicaid will be spared. "The president has made clear: Social Security, Medicare, Medicaid will not take a hit, so you can count on that and you can watch it develop as we go," he told reporters.

But he made clear that Republicans were considering some changes to Medicaid. "No one has talked about cutting one benefit in Medicaid to anyone who's duly owed," he said. "What we've talked about is returning work requirements, so for example, you don't have able-bodied young men on a program that's designed for single mothers and the elderly and disabled. They're draining resources from people who are actually due that. So if you clean that up and shore it up, you save a lot of money and you return the dignity of work to young men who need to be out working instead of playing video games all day."

Johnson said House and Senate committees would be working collaboratively, going over "big menus of options" for spending cuts and targeting waste, fraud and abuse. "We need to return to fiscal sanity," he said, "and that's what the Republican Party represents."

The fiscal outlook: Budget hawks warned that the resolution falls far short of being fiscally responsible and would add to the national debt, even if lawmakers follow the approach taken by the House. And a new analysis by the Congressional Budget Office finds that the Republican plans to make the 2017 tax cuts permanent and add another $1.5 trillion in tax cuts on top of that would increase the deficit by about $6 trillion over 10 years. Debt held by the public would climb to 220% of GDP in 2055, 63 percentage points higher than CBO's baseline projections. And economic growth, though faster for several years, would be slower over the longer term.

Inflation Hit 6-Month Low in March, but Tariffs Loom

Inflation slammed on the brakes in March, according to new government data released Thursday, as the consumer price index fell 0.1% on a monthly basis, contributing to a 2.4% rate over the last year. The annual rate is four-tenths of a percentage point lower than February, and the lowest reading since September.

A 6.3% decline in the price of gasoline played a major role in the month-over-month results. Food prices, on the other hand, jumped, with the groceries index increasing 0.5% on a monthly basis. Egg prices rose significantly, increasing 5.9% from February to reach a record $6.23 per dozen. Over the past 12 months, egg prices are 60.4% higher.

The core CPI index, which ignores volatile food and fuel prices to provide a clearer sense of the underlying trends, rose 0.1% in March, halving the increase seen a month earlier. The 12-month core inflation rate was 2.8%, three-tenths of a point lower than in February.

What analysts are saying: The dip in monthly inflation was welcome news, though many experts warned that it could represent the calm before the storm as higher tariffs begin to put upward pressure on prices in the coming months.

"This report is reassuring in that underlying inflation ex tariffs is in better shape than we thought, gives [the Federal Reserve] more space to respond to tariff-related unemployment rate increases," said Jason Furman, who led President Obama's Council of Economic Advisors. "But the Fed is not powerful enough to stop rising unemployment if the big tariff shock continues."

Greg McBride, chief financial analyst at Bankrate, warned that conditions could change significantly, and soon. "That was nice, but don't get used to it," he said, per the Associated Press. "All this is looking in the rearview mirror. With both inflation and the overall economy, uncertainty abounds about what might be lurking around the bend."

Joseph Brusuelas, chief economist at RSM, believes that inflationary pressure is already rising, even as the economy slows. "Under normal circumstances, the March CPI report would ease investor concerns about the direction of inflation," he wrote Thursday. "But given the nature of the trade shock that is coursing through the economy, the March inflation data provides an unambiguous signal that inflation will increase in the near term."

Many economists expect inflation to rise over the next three months, and Brusuelas estimates that inflation will hit 4% or 4.5% by mid-summer.

Trump Tariff on China Is Now 145%

A day after President Trump sparked a massive stock rally by declaring a 90-day pause on most of the "reciprocal" tariffs he has imposed on trading partners around the world, the White House clarified its approach to China, which had been excluded from the delay. Rather than the 125% tariff on Chinese goods that Trump announced yesterday, the White House explained that the tariff is actually 145% - the newly announced 125% on top of a previously imposed 20%.

The news helped send stocks sharply lower on Thursday, accelerating losses that reclaimed a good chunk of the gains recorded the day before. The S&P 500 fell 3.5%, while the Dow Jones Industrial Average shed more than 1,000 points, or 2.5%. Stocks are still below where they were eight days ago, when Trump proclaimed "liberation day" in the form of higher tariffs.

Even before the clarification from the White House, stocks were moving lower, as investors took in the sheer size of Trump's new tariffs and the risks inherent in an ongoing tariff war with one of the country's largest trading partners.

"Investors have sobered up," Melissa Brown, managing director of applied research at SimCorp, told CNBC. "Uncertainty is a big issue because the 145% rate could be a different number tomorrow. It's very hard to call a bottom or a top because things have changed so much in the narrative and investor perceptions."

Former Federal Reserve Chair Janet Yellen criticized Trump's tariff initiative Thursday, telling CNN that they increased the odds of recession as consumers and businesses cut back on spending. "This is the worst self-inflicted wound that I have ever seen an administration impose on a well-functioning economy," Yellen said. "We had a very well-functioning economy, and President Trump has taken a wrecking ball to it."

At a Cabinet meeting Thursday, Trump gave tariff critics a glimmer of hope when he didn't rule out the possibility of another pause on the import taxes, even as he spoke about reinstating them for any country that fails to make a trade deal with the U.S. "We'll have to see what happens," Trump said.

Budget Deficit Was $161 Billion in March: Treasury

The federal budget deficit totaled $161 billion in March, the U.S. Treasury reported Thursday.

Receipts totaled $368 billion during the month, while outlays came to $528 billion. The March deficit was 32% smaller than the deficit recorded in March a year ago. On a year-to-date basis, however, the deficit of $1.3 trillion was 23% larger than the deficit recorded in the same period last year.

The revenues included $8.75 billion in gross customs duties, an increase of 14% over February levels. The Wall Street Journal's Anthony DeBarros says the big jump in duties, which came in just shy of the record $9.6 billion collected in April 2022, probably reflects the 10% tariffs placed on Chinese imports by the Trump administration on February, as well as some new tariffs on goods from China, Canada and Mexico imposed in March.

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