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The Senate confirmed several Trump administration nominees and continued work on stablecoin legislation (see below). The House passed a rescissions package and a Senate passed bill to permanently classify fentanyl-related substances as Schedule I controlled drugs. It also passed three Washington, DC related bills to remove the district’s police union’s ability to negotiate police discipline, prohibit noncitizens from voting in local elections and overturn Washington, DC’s sanctuary city status.

The Senate will continue to confirm Trump administration nominees and wrap-up work on stablecoin legislation. The House will be out of session.

Reconciliation Update.

The House officially sent the "One Big, Beautiful Bill" to the Senate this week after passing some tweaks to the bill to try to smooth the procedural process of a reconciliation bill. Meanwhile, the Senate continues to work on its version of the bill. A few committees have completed their parts of it. However, the largest portion of the bill will come from the Senate Finance Committee, which has broad jurisdiction over taxes, Medicaid and other important areas. This piece may be released later today or early next week. We expect it to pare back some of the House bill’s Medicaid cuts. It also may make some of the business tax benefits (bonus depreciation and R&D) permanent since the House bill has them sunset in five years. The Senate version of the bill may also lower the state and local tax (SALT) deduction compared to the House bill. The Senate will bypass votes on the bill in relevant committees in its rush to get the overall bill on the floor during the week of June 23^rd. The rush is part of an effort to meet President Trump's self-imposed deadline of July 4^th. While the July 4^th deadline may not be met, the overall time pressure means that what passes the Senate is likely to be what is signed into law.

Reconciliation Explained.

We’ve talked a lot about how Republicans are using the budget reconciliation process to advance President Trump’s tax and spending priorities. The process, which was established by Congress in 1974, allows changes to federal tax and spending policies to be considered on a more streamlined basis. The key advantage is only a majority is needed in the Senate instead of the 60-vote threshold applicable to most legislation. That procedural advantage is accompanied by strict limits on the type of provisions that can be included. As we’ve noted before, the Senate Parliamentarian will be the key arbiter of whether individual provisions can stay in or not. Spending measures, tax policy changes and an increase in the debt ceiling are all covered. However, policy changes without a primary budgetary purpose cannot be included. Significant provisions in the bill may need to be modified or eliminated. These include a provision that would ban states from enforcing regulations on artificial intelligence for 10 years and provisions on energy permitting (these needed to be dropped from the Inflation Reduction Act in 2022). Getting through this murky procedural gauntlet is one of the most important steps in the reconciliation process.

Tariff Talks.

The Trump administration caught a break this week when a federal appeals court issued a temporary stay on a lower court’s decision to strike down many of the tariffs imposed by the Trump administration pursuant to emergency authorities. The pause will last for at least a couple of months as the appeals court considers the case. As we noted last week, this case seems destined to go to the Supreme Court in a lengthy legal process. At the same time, the Trump administration had negotiations with China that yielded a limited and temporary truce whereby the US gains access to rare earths (an important input for various tech and manufacturing products) in exchange for a modest lifting of some US export controls on China. There was no movement on tariff levels and no formal extension in the 90-day pause on tariff increases on China (set to expire on August 12^th), but the agreement on rare earths is for six months and effectively may lock in current levels over that time. The Trump administration also continues to conduct negotiations with other trading partners with the goal of bilateral agreements (the administration had set a 90-day deadline set to expire on July 8^th). With the underlying tariffs in legal limbo, the Trump administration signaled that it may extend the deadline on these discussions (as Treasury Secretary Bessent acknowledged in testimony this week) while continuing to put on pressure through sectoral tariffs (copper, lumber, semiconductors, pharmaceuticals, etc.) that rest on a stronger legal foundation.

Crypto Activity.

Both the House and Senate were busy with bills on digital assets this week. Two House committees passed a market structure bill that would set rules for the trading of digital assets and delineate regulatory authority between the SEC (securities) and the CFTC (commodities). Meanwhile, the Senate worked through various procedural steps in its effort to pass a bill to establish a regulatory framework for stablecoins (digital assets issued by private entities but backed by other assets including fiat currencies like the dollar). Importantly, the Senate sidestepped votes on controversial amendments such as an amendment aimed at credit card interchange fees that banks argue would harm consumer data security and curb rewards programs. A vote on some of these amendments could have jeopardized progress on the bill. With the hurdling of needed procedural steps, the stablecoin bill is on track to pass the Senate with bipartisan support early next week. The House would like to pair the stablecoin bill with more complicated and contentious market structure legislation, but the strong vote out of the Senate next week will put pressure on it to first pass the stablecoin bill in isolation.

Immigration.

The Trump administration is moving ahead with its agenda to crack down on illegal immigration and crime, a key issue and campaign promise for President Trump. There have been actions by both the White House and Congress to carry out Trump’s immigration and deportation agenda. Trump has issued a slew of executive actions on immigration so far this year, including limits on immigration asylum, parole and refugee admission programs. On the legislative front, there have been a number of immigration bills introduced, some of which have passed the House, including two bills this week. One bill would prevent noncitizen voting in local elections. The other overturns Washington, DC’s sanctuary city status, which removes policies that limit local agencies from cooperating with federal immigration authorities. Earlier this year, both chambers passed legislation later signed into law that expands the scope of undocumented migrants who can be detained if they are convicted of offenses like theft, shoplifting and violent crimes. There is also a significant budget increase for immigration and border law enforcement in the reconciliation bill. The House included a $168 billion increase. Immigration enforcement continues to be a top priority for President Trump and Republicans, but the recent protests in Los Angeles and elsewhere in the country (and the administration’s response to them) will be a key test of public support for the administration’s overall approach.

Rescissions.

The White House this week sent Congress a $9.4 billion rescissions package, which contains requests to cancel previously appropriated federal funds. This kicks off a 45-day timeline that lawmakers have to approve the package. Otherwise, the funds will be spent as originally directed. Congress can amend the package and remove cuts it doesn’t favor. The measure can pass the Senate with just a simple majority without having to meet the typical 60 vote procedural hurdle. The Trump administration’s rescissions package includes the cancellation of $8.3 billion in foreign aid and $1.1 billion in funding for public broadcasting (i.e. NPR and PBS). It also would cancel $1.3 billion in humanitarian assistance and $400 million from the President's Emergency Plan for AIDS Relief (PEPFAR). The rescissions are part of an effort to codify cuts identified by the Department of Government Efficiency (DOGE). Republican leadership has said that the House will pass the package next week, though some Republicans are not fully on board with certain parts of the proposal (e.g. cuts to PEPFAR and public broadcasting). This effort will be an important test case for whether rescissions can be an effective budget-cutting tool over the next few months.

More Spending.

As Republicans and President Trump call for reductions in federal spending and balancing the federal budget, many reforms they are seeking in the “big, beautiful bill” call for significant spending increases in certain areas. While there are over $1 trillion in spending cuts in the bill, they are dwarfed by the costs of the 2017 tax extensions, tax deductions on tips and overtime pay, and border security and defense budget increases. The Congressional Budget Office projects the House reconciliation bill would add $2.4 trillion to the national debt (over ten years) after accounting for the spending reductions and new revenue measures. Senate Republicans have been looking for ways to further reduce federal spending to offset some of the tax provisions, but disagreements over Medicaid cuts, reduced SNAP benefits and energy tax credit repeals leave complications for how much the final bill will offset. The reconciliation bill also includes an increase in the debt ceiling. This underscores the difficulty of reducing federal spending in Washington.

An Evolving Senate Map.

Recent Texas primary polls have shown Attorney General Ken Paxton (R) leading Senator John Cornyn (R) by 20% or more, a notable trend given that Texas traditionally has one of the earlier primaries in the country. Paxton's strong appeal in the primary election has some national Republicans worried about a general election. For their part, Democrats have been quick to say that they believe Texas is in play if Paxton is the nominee, though this wouldn't be the first time they've believed that. Winning a Texas Senate seat is one of Democrats’ easiest paths to taking back the Senate, which demonstrates what an uphill battle they have in 2026. With their current 53-47 majority, Republicans would need to lose four seats next year to lose control of the Senate. The two best pickup opportunities for Democrats are Maine and North Carolina. Both are being defended by proven Republican incumbents, while Democrats have yet to be able to recruit their respective governors to run for the Senate seat. Even if Democrats were to win all three of these seats, their fourth would need to be in a deep Republican state such as Florida, Iowa, or Ohio. And that is all premised on their not losing any of their current seats. Despite Democrats’ optimistic tone, their best chance to flip a chamber in Congress remains the House.