The Washington brief

Executive summary

• The start of June brings added urgency for several key fiscal considerations, including the current tax bill, debt ceiling, appropriations, and recissions.
• Trump’s “One Big Beautiful Bill” – a massive tax bill – passed in the House and has moved on to the Senate. Significant Senate changes would make passage by the President’s July 4^th deadline difficult to achieve.
• That bill also raises the debt ceiling, adding urgency for Congress to pass it quickly. But if negotiations deteriorate, Congress might resort to addressing the debt ceiling separately.
• Funding for the next fiscal year is also under consideration over the coming weeks. The Trump Administration is also now developing a roughly $9 billion rescissions package focusing on many of the DOGE targets including several foreign aid programs.
• Also on the summertime docket is cryptocurrency regulation, which would establish a federal framework to ensure consumer protection and transparency in the crypto market. However, it’s complicated by differing approaches in the House and Senate along with the Trump family’s significant financial involvement in the crypto space. 

Our Take

Fiscal policy items

Tax bill

At the end of May, the House passed the so-called “One Big Beautiful Bill” (BBB), which is a unified piece of legislation addressing President Trump’s major campaign promises. It is using the reconciliation process, which allows Congress to pass legislation with a simple majority vote in the Senate, bypassing the 60-vote filibuster threshold. But the reconciliation process has limitations, including that such bills must start in the House and are restricted to budgetary matters.

The three key pieces of the BBB bill are an extension of the major provisions of the Tax Cuts and Jobs Act of 2017, tax breaks for overtime and tips for certain taxpayers and for State and Local Tax (SALT), and increased resources for border security and national defense. A provision to raise the debt ceiling was included in the House-passed BBB bill. The net result of the bill is huge increase in the federal budget deficit, making its final margin for passage in the House razor thin.

The bill now moves to the Senate, which has different political and policy priorities. Senators have already questioned the House bill’s overall cost, cuts to the Medicaid Program, changes to Biden-era energy tax credits, and the amount of SALT relief it provides. As of May 30^th, 34 of 53 Republican Senators had expressed concerns with certain components of the House passed bill. This makes it almost certain a very different bill will emerge from the Senate. The two Chambers will likely produce bills that vary considerably, making a full resolution difficult to achieve by President Trump’s July 4^th deadline.

Debt ceiling

Lurking in the background is the deadline to increase the government’s debt ceiling, which is estimated to occur sometime in August or September. A provision to raise the debt ceiling was included in the House-passed BBB bill, which certainly ups the stakes, the cost, and the need to pass that bill; however, it is not the only path forward. If progress on the BBB stalls, nothing precludes Congress from raising the debt ceiling separately and deferring the larger tax package to later this year. Senators Rand Paul (R-KY) and Ron Johnson (R-WI) – both of whom are budget hawks – are key Senators to watch.

Appropriations

Congressional appropriators are now considering government funding for the next fiscal year, which begins on October 1^st. Review begins with the Trump Administration’s budget, which contains $163 billion in various cuts and a 13% increase in defense spending. The budget subcommittees have scheduled June and July to produce their bills. Once they decide on priorities, both chambers must either pass a funding bill for each agency, or an omnibus bill that covers all government funding into one package. Following passage, appropriations are laws and legally binding. It is important to note that on an ongoing basis, spending changes signed into law including cuts recommended by Department of Government Efficiency (DOGE), have full legal certainty and would survive most judicial challenges.

Recissions

While appropriations bills cover future spending, there are tools that can be used to address previously enacted budget authority that has yet to be obligated. Earlier this year, the Trump Administration attempted to freeze spending associated with programs started under President Biden. Those measures have come with mixed results because, as noted, those expenditures were included in laws. To achieve legally binding cuts, the Trump Administration needs to pullback, or rescind, those funds. The rescission process is a way for Congress to cancel unspent funds previously appropriated. Those funds can then be redirected elsewhere or sent to the Treasury general fund. The Trump Administration is now developing a roughly $9 billion rescissions package to send to Congress. These cuts are said to focus on many of the DOGE targets including United States Agency for International Development (USAID), National Public Radio, and several foreign aid programs. Once finalized and submitted, Congress would then have 45 days to act on a rescissions bill.

Cryptocurrency regulation

At the end of May, the Senate overcame the filibuster to begin consideration of the GENIUS Act, a bill that regulates payment stablecoins by establishing a federal framework to ensure consumer protection and transparency in the cryptocurrency market. This week, Senators will start voting on dozens of amendments to that proposal. This bill has significant support from the Trump Administration as well as enough Democrats to overcome the 60-vote threshold for closure (it passed 66-32, with 15 Democrats voting with 51 Republicans).

Meanwhile, the House has also prioritized stablecoin legislation but has not begun its process. The House’s proposed STABLE Act shares many of the goals of the GENIUS Act but varies in specifics. The House leadership plans to couple the STABLE Act with another bill resulting in the CLARITY Act, which is intended to address all the outstanding issues related to crypto into one comprehensive bill.

Additionally, the Trump family’s significant financial involvement in the crypto space further complicates efforts to pass crypto-related legislation. For many Democrats, the President’s apparent conflicts of interest make supporting the bill a political impossibility. Additionally, the fact that the House and Senate have differing approaches will make reconciling their bills very difficult. On the other hand, the crypto industry was very energized during the last political cycle and their involvement was considered the deciding difference in several close races. Ultimately, the most likely approach will involve the White House pushing House leadership to pass whatever the Senate’s stablecoin legislative process produces.

Bottom line

Cutting spending and changing the tax code are some of the hardest things to do in Washington. Additionally, there are many outstanding questions around the budgetary feasibility (and legality) of certain spending cuts and programmatic policy changes that have been attempted by this administration. Accordingly, markets should expect the potential for significant policy changes throughout the legislative process, and potentially, an extended timeframe for select major initiatives.