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Trump's plan for "one big beautiful bill"

AInvestMonday, Jan 6, 2025 7:57 am ET
2min read

The GOP's push for a single large reconciliation budget bill, instead of two smaller ones, represents a strategic pivot to advance President-elect Donald Trump’s legislative priorities. Speaker Mike Johnson (R-La.) announced during a House GOP retreat that Trump favors a "big, beautiful bill" combining border security, tax cuts, and energy policies. This approach contrasts with the two-bill strategy endorsed by Senate Majority Leader John Thune (R-S.D.) and Trump aide Stephen Miller, who advocate for a quick, standalone border security package followed by tax reform. The one-bill approach aims to streamline legislative efforts but comes with risks due to the GOP's razor-thin majorities.

The primary difference between the two approaches lies in timing and complexity. A single reconciliation bill consolidates priorities, minimizing the number of legislative hurdles and allowing Republicans to present a unified front. However, this requires delicate negotiations to balance various factions within the GOP. In contrast, the two-bill strategy offers an early win on border security while deferring contentious tax reform debates. Proponents of this approach argue it reduces the risk of legislative gridlock and aligns with Trump’s campaign promises for swift action on immigration.

The proposed reconciliation package would include extending the 2017 tax cuts, which are set to expire, imposing spending cuts, and providing significant funding for border security. Tax-cut extensions are crucial to prevent a potential economic slowdown and ensure businesses and households avoid uncertainty. Including border security measures and spending cuts in the same bill broadens its appeal across GOP factions, uniting fiscal conservatives and immigration hawks. However, this strategy demands near-unanimous GOP support in the House and Senate, where the party’s slim margins leave little room for dissent.

The GOP faces several procedural and political challenges to pass the bill. Reconciliation allows the Senate to bypass the filibuster but limits legislation to fiscal matters. First, the House and Senate must agree on a budget resolution enabling the reconciliation process. Given internal divisions over priorities like social safety net cuts, clean-energy tax breaks, and state tax deductions, achieving consensus could take months. Additionally, Trump’s influence as a dealmaker will be pivotal in rallying wavering members, akin to his role in the House Speaker vote.

Markets are responding positively to the one-bill strategy, interpreting it as a viable path to implement Trump 2.0 policies. Equities are seeing early gains as investors anticipate pro-growth measures such as tax cuts, deregulation, and fiscal stimulus. The consolidation of priorities into a single package minimizes uncertainty and underscores the GOP’s determination to deliver on its legislative agenda. Analysts believe the tax cuts and infrastructure investments included in the bill will provide a boost to corporate profits and economic activity.

The decision to pursue a single bill reflects lessons from past legislative efforts. GOP leaders highlight the difficulty of passing multiple reconciliation bills within the same year, as evidenced by the Democrats’ struggle to pass two packages during the Build Back Better negotiations. House Ways and Means Chair Jason Smith (R-Mo.) emphasized that history favors the one-bill approach, citing its efficiency and reduced risk of failure. Smith’s alignment with Trump and his role in shaping the legislation underscore the importance of tax cuts as the centerpiece of the GOP’s agenda.

Despite its potential benefits, the one-bill strategy carries significant risks. The bill’s complexity and size could alienate members from different factions of the GOP coalition, jeopardizing its chances of passage. Deep spending cuts to social programs, conflicts over clean-energy tax breaks, and state tax deduction limits may create friction among lawmakers. Moreover, the extended timeline for passing such a comprehensive package could delay immediate wins for the party, undermining early momentum in the new administration.

In summary, the GOP's unified reconciliation bill strategy signals a bold attempt to deliver Trump’s legislative agenda while navigating internal divisions and procedural hurdles. Markets are optimistic about the potential for growth-friendly policies, but the road ahead remains fraught with challenges. Success will hinge on the party’s ability to balance competing interests and leverage Trump’s leadership to maintain unity. If executed effectively, the bill could mark a significant milestone in advancing the GOP’s fiscal and policy goals.

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