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IN THIS EDITION

Arrington ‘accidentally’ pitches raising taxes in presentation to House GOP

Gabbard reverses course on key intel-gathering tool as nomination teeters

The Vault: Warren’s Senate Banking team is here

Longtime key House GOP aide departing for Peterson Foundation

THE TOP

Arrington ‘accidentally’ pitches raising taxes in presentation to House GOP

Happy Friday morning.

Behind the scenes. At a House Republican lunch this week, Budget Committee Chair Jodey Arrington (R-Texas) was presenting a series of slides when he landed on a suggestion that sent people on and off Capitol Hill into a frenzy — raising the corporate tax rate.

Preserving the 21% corporate rate from the 2017 Trump tax cuts is a red line for plenty of Republicans. President-elect Donald Trump has even called for cutting it further.

But the idea of raising corporate taxes somehow made its way into the Texas Republican’s presentation. Arrington told us there was a “mistake” and he emphasized that such a rate hike “wasn’t even on the table” as part of his presentation.

Yet at that Republican Study Committee lunch, Arrington intentionally floated other examples of ways to raise revenue in the tax code.

These included clawing back clean energy tax credits from Democrats’ Inflation Reduction Act — a common, though politically fraught, GOP goal — and a SALT cap for corporations. Addressing “corporate SALT” would entail limiting what companies can deduct in state and local income taxes, much like Republicans did for individuals in 2017.

There’s some frustration in GOP circles brewing with Arrington over his ambitious plans for cost savings, which include ideas under other committees’ jurisdictions.

This episode also underscores just how hyper-intense the Republican discussions already have become around their massive reconciliation package. And the really tough bargaining hasn’t even begun.

The GOP hunt for spending cuts will become even more painful quickly, as the mere possibility of some offsets is already riling Washington. The prospective Republican reconciliation package is expected to cover taxes, spending cuts, border security and energy, as well as addressing the politically difficult issue of raising the debt limit. All this will have to be carried by Republicans alone without any Democratic support.

Beyond the tax arena, Arrington is pushing for trillions of dollars in cuts to Medicaid and discretionary spending over the next decade, as well as controversial changes to food stamps and federal welfare programs. The Texas Republican’s budget proposals, aka “Reverse The Curse,” are being pitched across the House GOP Conference. And they’ll be part of what Arrington discusses when top House Republicans head to Mar-a-Lago this weekend to talk reconciliation with Trump.

“I can’t tell you where it will end up, but there are trillions of dollars” in savings outlined in his budget plan, Arrington told reporters on Thursday.

Trump and his top aides also project that a wave of new import tariffs ordered by the president-elect once he takes office could generate trillions more in revenue. Tariffs aren’t expected to be legislated through reconciliation.

We’ll note also that Arrington’s budget proposals never made it to the House floor last Congress, with GOP leaders deciding against doing so given their tight margins of control. Plus, new American tariffs could set off an international trade war with unpredictable fallout for the U.S. economy.

But with extending the Trump tax cuts projected to cost more than $4 trillion over a decade, and the budget deficit running at nearly $2 trillion annually, Republicans can’t afford to add to the tidal wave of red ink. Global debt markets are already nervous, and anything that adds significantly to the $36 trillion national debt is going to be a problem for Republican deficit hawks.

“We’re going to be having conversations with each chairman to make sure that the targets they’re given are achievable within their committee, and then ultimately get pulled back into budget reconciliation to give us the ability to do all the things you want to do,” House Majority Leader Steve Scalise told us.

“It’s going to be difficult,” acknowledged Rep. Mike Simpson (R-Idaho), a House Appropriations Committee cardinal. “If you’re going to find $2 [trillion], $2.5 trillion dollars in cuts, or whatever, you’re not going to be able to do that without going after mandatory spending.”

When asked about Medicaid cuts, which could include new work requirements and block grants among other changes, Simpson responded: “I would want to see how you’re going to do it. If all you’re doing is going in and slashing and burning, I don’t know if that’s the right way to do it.”

However, there will be tremendous pressure on rank-and-file Republicans to buckle under pressure from Trump and party leaders.

“The president has made it clear he just wants results,” noted House Ways and Means Committee Chair Jason Smith (R-Mo.). “He is willing to wait longer. And if senators try to delay, that can create problems. If members decide to delay, that can create problems.”

We’ve even begun to see signs that conservative hardliners would back a debt-limit increase as part of reconciliation — if there are real efforts to rein in federal spending, including entitlement programs.

“I can see myself doing it again if there’s the right bill,” said Rep. Thomas Massie (R-Ky.) “I don’t know, we’ll have to see. Has to be more than lip service.”

Rep. David Schweikert (R-Ariz.), another deficit hawk, believes that unless Congress and the incoming Trump administration communicate to world debt markets that they understand the precarious position the country is in, simply raising the debt limit could cost more due to higher interest rates in the long run.

Also: In case you missed it, Speaker Mike Johnson is looking to replace the House chaplain.

— Laura Weiss, John Bresnahan, Melanie Zanona and Jake Sherman

The Daily Punch 🥊 With new episodes every weekday morning, The Daily Punch brings you inside Capitol Hill, the White House and Washington all in less than 15 minutes. Listen to today’s episode now.

THE SENATE

Gabbard reverses course on key intel-gathering tool as nomination teeters

News: Former Rep. Tulsi Gabbard (Hawaii), President-elect Donald Trump’s nominee for director of national intelligence, is changing her tune on a key intelligence-gathering authority she once sought to repeal as her Senate confirmation hangs in the balance.

Gabbard’s past criticisms of Section 702 of the Foreign Intelligence Surveillance Act have emerged as a central issue in her confirmation process, leaving GOP senators — including some in leadership — increasingly skeptical about the former Democrat’s confirmation prospects.

In her first public comments since being nominated, Gabbard told us in an exclusive statement that she now supports Section 702, saying the program is “crucial” and “must be safeguarded to protect our nation while ensuring the civil liberties of Americans.”

“If confirmed as DNI, I will uphold Americans’ Fourth Amendment rights while maintaining vital national security tools like Section 702 to ensure the safety and freedom of the American people,” Gabbard said.

In private meetings, senators are questioning Gabbard about legislation she introduced in 2020 that would repeal Section 702.

However, Gabbard now appears to be walking that back, citing Fourth Amendment protections implemented since then to prevent the incidental collection of Americans’ data:

Inside Gabbard’s Senate meetings: Multiple senators from both parties who met with the former Hawaii lawmaker in recent days told us they emerged from those sessions unsure about Gabbard’s position on the 702 program. During these meetings, senators have pressed Gabbard on her previous public statements on the issue, as well as her votes against 702 reauthorization throughout her eight years in Congress.

GOP national security hawks in particular viewed this as problematic, we’re told, fueling renewed doubts about her confirmation prospects. Sen. James Lankford (R-Okla.), a member of the Senate Intelligence Committee, suggested on a WSJ podcast Wednesday that Gabbard should disavow her previous opposition to the 702 program.

Senate Intelligence Committee Chair Tom Cotton (R-Ark.) also sent us a statement Thursday night supporting Gabbard’s 702 stance — a key indicator of how the GOP leadership is thinking about her nomination.

“Tulsi Gabbard has assured me in our conversations that she supports Section 702 as recently amended and that she will follow the law and support its reauthorization as DNI,” Cotton said.

That last part is important because, if confirmed as DNI, Gabbard would need to certify the statute annually in order for intelligence collection to continue under the 702 program.

Next steps: Gabbard’s public statement is likely to reassure Republicans who are on the fence about her nomination. But there are a handful of other issues that have come up during her meetings with senators, including her views on Ukraine, as well as secret visits to Syria and Lebanon while serving in Congress.

There’s also the fact that Gabbard’s foreign policy views are anathema to Republicans, particularly defense hawks. Gabbard isn’t expected to get any Democratic votes, so she can’t afford to lose more than a few Republicans.

Senate GOP leaders were hoping to schedule Gabbard’s confirmation hearing for next week, but paperwork-related delays have caused that to slip, likely into the following week. The Intelligence Committee is instead starting with former Rep. John Ratcliffe’s nomination to serve as CIA director.

More news: Gabbard is scheduled to meet with Director of National Intelligence Avril Haines today at ODNI headquarters, we’re told. Gabbard’s meetings with senators will resume next week.

— Andrew Desiderio

COMINGS AND GOINGS

Longtime key House GOP aide departing for Peterson Foundation

Natalie Joyce, the House’s director of interparliamentary affairs, is leaving Capitol Hill and taking a top job with the Peterson Solutions Fund.

The Peterson Solutions Fund is part of the network of nonpartisan, nonprofit organizations affiliated with the late Pete Peterson, the billionaire co-founder of the Blackstone Group. Peterson put his wealth toward a number of entities that deal with fiscal and economic issues.

Joyce will be the vice president of advocacy for the Peterson Solutions Fund, a 501(c)(4).

Joyce is a longtime House GOP aide who has served in a number of key roles in the institution for both Speaker Mike Johnson and former Speaker Kevin McCarthy. Her previous role was deputy chief of staff to McCarthy. She worked for McCarthy for 12 years, serving as director of member services when Republicans were in the majority and the minority.

In going to the Peterson Solutions Fund, Joyce will be reunited with Brett Loper, her fellow Mississippian with whom she served in the House Republican leadership. Loper, now the organization’s executive director, came to Peterson from American Express.

“Natalie has been a trusted advisor to Members of Congress on both sides of the aisle and her knowledge of the inner workings of Congress will be an invaluable asset in her new endeavor,” Johnson said in a statement. “I am personally grateful for all of Natalie’s years of service to the nation, and we wish her great success in the next chapter of her career.”

Here’s a statement from McCarthy:

— Jake Sherman

AND THERE’S MORE

Scoop: Sen. Josh Hawley’s (R-Mo.) office is circulating a labor policy framework that includes new protections for unions as well as stricter crackdowns on labor law violations.

The framework, which we obtained, has been shared with a number of Senate offices. The Teamsters union has also been sending it around, we’re told.

It’s rare to see a Republican pushing these types of labor policies, but Hawley has long talked about his desire to see the GOP re-orient its messaging on this issue, particularly when it comes to unions.

When reached for comment, Hawley’s office sent us this statement: “We look forward to advancing meaningful legislation for working people this Congress.”

— Andrew Desiderio

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