Washington Weekly: Hurricane DOGE
Governmental Affairs US,聽28 February 2025
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Governmental Affairs US,聽28 February 2025
This Week:
The Senate confirmed two of President Trump鈥檚 nominees, Daniel Driscoll to serve as Army Secretary and Jamieson Greer to serve as US Trade Representative. It also passed a resolution to reverse a Biden administration regulation affecting offshore drilling. The House passed a budget resolution (see below) and a bill to repeal a Biden administration rule on energy efficiency standards for gas-fired water heaters. Both chambers passed legislation to overturn a Biden administration rule that imposes a fee on methane waste emissions for oil and gas producers.
Next Week:
The Senate will continue to confirm Trump administration nominees and vote on a bill to ban transgender student athletes from competing in girls鈥 and women鈥檚 sports at schools that receive federal funding. The House will vote on the Senate-passed resolution to reverse a Biden administration offshore drilling rule and several other resolutions to repeal Biden administration energy rules.
The Lead
While Elon Musk continues to be vilified in many media outlets and by some voters, the concept of making government more efficient remains a popular goal. It鈥檚 not easy to keep up with the frantic pace of Musk鈥檚 daily activities or to understand the specific plan behind them or even their legal basis. He is cutting the workforce quickly and scrutinizing different departments each day. The courts have recently restricted his access to some employees and functions, but he has plenty of targets to move to each day. We wonder if his blistering pace will soon prove to be a liability. Typically, an administration would seek to justify reforms through studies that document a clear rationale. That hasn鈥檛 happened yet, except anecdotally. It seems inevitable that a frenzied or short-staffed government agency will soon make a big mistake that the public will frown upon. This could be an insufficient response to a natural disaster, late tax refund payments, a shortage of air traffic control or a setback in crucial federally funded medical research. When such a mistake is made, Musk and President Trump will be blamed since the latter now runs the government. Such a revelation won鈥檛 slow the DOGE project, but it could change how voters view it and whether they believe it is guided by a thoughtful and credible plan.
On Tuesday, the House passed a budget resolution in a 217-215 vote. This is the first step in the complex and months long process of budget 鈥渞econciliation.鈥 The budget sets parameters around tax cuts and spending (both new spending and offsetting cuts) that will need to be implemented through a subsequent reconciliation bill. That second bill will cover new funding for immigration enforcement and defense, as well as reforms to energy policy, the extension of the 2017 tax cuts for individuals, and deficit reduction. The budget resolution and the following reconciliation bill have been the highest priorities for Republican lawmakers and the President since the election. This week鈥檚 vote in the House is a crucial first step. The second bill, which likely won鈥檛 be ready for a vote until June or July at the earliest, will be a big challenge for House Republicans (who will not be able to lose more than two votes to pass the bill).
The budget resolution passed by the House also includes an increase in the debt ceiling, which would remove a big political headache for Republican lawmakers over the next two years. However, such an increase must also be included in the second bill 鈥 the reconciliation measure 鈥 to go into effect. It is currently estimated by Treasury officials that a debt limit extension will need to be passed by Congress sometime this summer or the US could potentially renege on its debt obligations. No one wants that outcome. This poses the question of whether the House and Senate can pass its reconciliation bill by the summer with a debt ceiling extension included. If it can, the debt ceiling threat will subside. If it can鈥檛, a debt ceiling increase would have to be added to a separate bill (perhaps a bill providing aid to states, including California, for natural disaster assistance), which would require bipartisanship. In that situation, Democratic lawmakers would no doubt make some tough demands for Republicans to secure their votes that would complicate its passage. This issue will be hanging over the heads of Republican lawmakers who will negotiate the reconciliation bill between now and the summer. Like most recent debt ceiling extension debates, it will be nerve-wracking and a source of considerable interest to nervous investors and financial markers as we approach the summer.
The Senate passed its own budget resolution last week, but it is more narrow and only contained the extra funding for immigration and defense and the energy reforms. The Senate will now have to reconcile its resolution with the House or just pass the House measure. The two resolutions are very different but must be reconciled before the reconciliation bill can move forward. We expect House and Senate leaders to meet on this need in the next week and chart a path forward to pass a revised budget resolution in March or April.
Other Issues
Higher tariffs on goods from Canada and Mexico proposed in late January were paused until March 4 pending negotiations between the US and both countries. President Trump indicated this week he will move ahead with many of the higher tariffs on both countries and also will impose higher tariff levels on China. All three countries are expected to retaliate with higher tariffs on US goods entering their territories. The Trump administration is considering additional tariff increases on other products and countries with an effective date on or around April 1. Will the higher tariffs stoke inflation to a degree that it hurts Trump politically? If so, will he recall them or push ahead still? In our view, this will be the only dynamic giving the President cause for a reassessment. Those answers will be better known in late April, but they will help inform us about the President鈥檚 future tariff policies.
Both by law and custom, given the technical and sensitive nature of their work, many federal regulatory agencies have operated with a degree of independence from the White House. Regulators have different statutory features that may make them more or less independent (e.g. terms that last for more than four years, protections from removal, dedicated funding source outside of Congressional appropriations process, among others). Last week, the Trump administration issued an executive order that looks to curtail much of this independence. The order requires agencies to submit regulatory actions for review by the White House, grants the administration oversight of agencies鈥 budgets, and requires agencies to follow interpretations of the law set by the Attorney General. The order is designed to give the White House greater control and influence over the regulatory agenda and on these agencies鈥 activities, though the review process could slow down the regulatory process and the pace of regulatory change. For regulated entities, less regulatory independence could mean less certainty and greater swings in policy changes from administration to administration. As with many of the executive orders, this one will almost certainly face challenges in court.
The Congressional Review Act (CRA) is a federal law that was enacted in 1996 and empowers Congress to review and potentially overturn certain federal regulations issued by executive agencies. Per the law, Congress has 60 legislative days to pass a joint resolution of disapproval after a regulation is finalized. It only requires a simple majority in both the House and Senate. The House this week passed a CRA resolution to overturn a Biden-era rule that placed a tax on methane emissions. There are roughly 800 Biden-era regulations that were finalized within the timetable to be eligible for repeal by Congress using the CRA, and the House is likely to use the law to target additional energy regulations next month. The Senate should be able to pass these bills too, since they will need only 50 votes to pass. The regulatory repeal of Biden-era regulations is occurring both through executive orders and now through legislation.
There are a lot of leaders and countries with strong views on what should happen next in Ukraine and what terms should guide any process for peace. The situation on the ground and between the two warring countries continues to be very fluid. We sense that President Trump鈥檚 highest priority over the next two weeks is to get agreement from both sides for a temporary ceasefire. The President would probably love to announce that in next week鈥檚 State of the Union address. Russia seems skeptical of a ceasefire but runs the risk of angering Trump, who has seemingly been accommodating to Russian President Putin so far. While there are many different views about what should happen in the region, a ceasefire would unify most engaged countries in the region as a short-term success. It鈥檚 possible that Trump鈥檚 plan to find peace in Ukraine could change dramatically if Russia refuses this request and that his accommodation of Putin could end.
President Trump reportedly has an agreement with Ukraine that will be announced next week over US access to Ukraine鈥檚 critical mineral deposits. Separately, we know that President Trump鈥檚 has expressed interest in purchasing Greenland, which also has significant critical mineral deposits. Trump seemingly is taking a different approach than his predecessors in pursuing access to critical minerals. Critical minerals are paramount to national security and the future of the economy as they are used in everything from military applications, energy production, phones and other digital products, and many items in between. China is currently a primary source of critical minerals and in December banned the export of some of these minerals to the US. If Trump wants to further isolate China, the US cannot be at their mercy for critical minerals. This issue has not been on the radar screen of Trump policy priorities, but we believe it will indeed be a high priority for Trump while he is in office.
The Final Word
On Tuesday President Trump will address a joint session of Congress for the first time in his second term. This 鈥淪tate of the Union鈥 is one of the most important public platforms for a president. The first State of the Union began with George Washington in 1790, though it wasn鈥檛 until FDR that the address was officially named the State of the Union. During his first term, Trump averaged 44.3 million viewers for each session, making these addresses his primary platform for laying out his agenda going forward. In years past he鈥檚 focused the addresses on unity (2017), economy and the border (2018 and 2019), and making his case for reelection (2020). This year there will be no shortage of topics to be covered. What Trump decides to focus on and for how long will provide insight as to his priorities for the remainder of the year. Trump鈥檚 prior addresses averaged one hour and fifteen minutes, so be ready to stay up late if you鈥檙e on the East Coast, especially if he makes a run at Clinton鈥檚 all-time record of one hour and twenty-eight minutes.