capitol building

This Week:

The Senate confirmed several Trump administration nominees, including Federal Reserve Governor Michelle Bowman to serve as Vice Chair for Supervision. The House passed a bill to reauthorize opioid treatment and recovery programs and a bill to move Small Business Administration (SBA) offices out of sanctuary cities. It also passed a cap on the maximum number of certified small business lending companies eligible to make 7(a) loans and restrict SBA loans based on immigration status.

Next Week:

The Senate will continue to confirm Trump administration nominees and will try to complete its work on a stablecoin regulation bill. The House may vote on a rescissions package (see below) and a Senate passed bill to permanently classify fentanyl-related substances as Schedule I controlled drugs. It will also vote on three Washington, DC related bills.

The Lead

One Big Beautiful Bill Update.

It is the Senate’s turn to develop and pass a reconciliation package of President Trump’s tax and spending priorities after House Republicans narrowly passed their version two weeks ago. Senate Republicans are trying to meet a deadline set by President Trump to pass this massive bill into law by July 4th (in three weeks). This is an exceptionally ambitious timetable given the scale and scope of the bill, the complexities of the reconciliation process in the Senate and the divisions among Senate Republicans. Some Senate Republicans (and Elon Musk) object to the inclusion of a needed increase to the debt limit and believe that the bill has insufficient spending cuts to offset the cost of tax cuts (the House bill has $1.7 trillion in spending cuts but raises the deficit by $2.4 trillion over ten years). On the other side, some Senate Republicans are opposed to the House bill’s significant cuts to safety net programs like Medicaid (more than $1 trillion) and the Supplemental Nutrition Assistance Program ($300 billion). Some Republicans also have concerns about the House bill’s repeal of $550 billion of clean energy tax credits from the Inflation Reduction Act. It will be difficult to reconcile these views given that Republicans cannot afford to lose more than three of their members in order to pass the bill. Further complicating things is that any Senate bill will need to pass the House where Republicans can’t lose more than three of their members. Republican leadership in the Senate will try to jam through a bill as close as possible to the House-passed bill before July 4, but that will be easier said than done given all of these constraints.

Tariff Uncertainty.

The Trump administration invoked broad emergency authority to implement a wide variety of tariffs (including the 10% across-the-board tariff, the reciprocal tariffs and the various tariffs placed on China, Canada and Mexico tied to fentanyl). A decision last week by a federal court struck all of these down and thereby blasted a massive hole in the administration’s overall tariff strategy. Here are some ways in which the administration is scrambling to respond.

  • The administration is appealing the decision. A key determination on whether the current decision should be stayed (i.e. paused) while the underlying case is considered will be made over the coming weeks. However, the appeals process on the underlying case may not get to the Supreme Court until next spring. This will be a lengthy legal process.
  • With a resurfacing of charged rhetoric with China since the breakthrough discussions in Geneva in May, President Trump had a call yesterday with President Xi. Meanwhile, the Trump administration is trying to prod other nations on “reciprocal” trade deals. The recent court decision only underscores that any bilateral deals will be agreements in concept rather than legally-enforceable trade deals.
  • The Trump administration will apply tariffs through other legal authorities. However, these authorities tend to be narrower, more procedurally laborious and sector-based than the broad-based emergency authority. The administration just increased tariffs on steel and aluminum from 25% to 50% this week and is in the process of imposing tariffs on other sectors (semiconductors, pharmaceuticals, among others) in the next month or two. One law would allow the Trump administration to impose a 15% tariff on countries with which the US has a large trade deficit in goods, but those tariffs would be limited to 150 days. That authority could come into play if President Trump feels frustrated by lack of progress in bilateral talks.

Other Issues

Tax War Up Next?

Earlier this year, we previewed that Republicans were working on a retaliatory tax for countries that have imposed a global minimum tax. This retaliatory tax was included in the House Republicans’ reconciliation bill. An overarching worry is that this complicated provision would discourage foreign investment in the US. Internationally headquartered companies with US operations in the US and foreign investors in the US have particular concerns about how the provision would impact them. Republicans are brushing aside those concerns by arguing that the tax is meant as a deterrent and only goes into effect if a country levies a discriminatory tax. That is not enough to quell the nerves of many CEOs and investors. President Trump has made many headlines the first half of this year with the prospect of a trade war. This provision may bring about similar headlines with respect to a tax war.

Remittance Tax.

While some Republicans (including Vice President JD Vance) have been promoting the idea of an excise tax on remittances for years, the House reconciliation bill’s inclusion of a 3.5% tax was a surprise. Concerns are cropping up now that the provision’s potential impact is being more closely examined. Supporters of the tax indicate that it is intended to cover money transfers out of the US by undocumented workers. However, as lawyers and accountants dissect the bill’s text, it appears to have a much wider application than intended. Republican Senators now will evaluate this provision as they receive feedback about its potential unintended consequences. While there is a chance that the remittance excise tax gets scrapped, we think revisions to limit its impact on a wider swath of cross border activity are more likely.

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.

Scaling Back Environmental Protections.

The administration’s desire to make deep cuts to environmental agencies came into sharp focus this week as details from the Trump administration’s proposed 2026 budget were revealed. The Environmental Protection Agency (EPA) unveiled plans to slash its budget by more than half, including a 91% reduction in state grants. While grants for tribal programs and underground injection control would be spared, there would be rollbacks to civil and criminal enforcement programs and large staffing cuts. The Department of Energy has offered a plan with a similar strategic direction that would see the Office of Clean Energy Demonstrations begin winding down, the cancellation of nearly $4 billion in clean energy funds, and a significant scaling down of the Office of Energy Efficiency and Renewable Energy. The Interior Department, too, would shed more than 5,000 National Park Service jobs and eliminate its offshore wind program. While any president’s budget is just an aspirational proposal, the intent behind it will be heard loud and clear by Congress as they begin their work on next year’s budget.

The Final Word

New Jersey’s Tea Leaves.

Next week’s gubernatorial primary in New Jersey will offer the first major test of party dynamics in a state that had among the furthest swings to the right in 2024. Democrats are fielding a wide ideological slate, with Congresswoman Mikie Sherrill, part of the 2018 anti-Trump wave, holding a narrow lead in recent polls. Her centrist profile is not dissimilar to that of Senator Elissa Slotkin (D-MI), who prevailed in her Senate race even as President Trump won Michigan and who Democrats tapped for this year’s State of the Union response. However, the left is pushing back, arguing Democrats need a more progressive agenda. Republicans have fewer contenders but span the ideological gamut, from Trump loyalists to Trump skeptics. Former state representative Jack Ciattarelli leads for now, but New Jersey has a history of primary surprises that signal broader political shifts. With five months to go before November, next week’s results could offer an early read on whether the rightward shifts in blue states last year were an aberration or the start of a trend.