Why Reconciliation 2.0 is much harder now

IN THIS EDITION

Trump’s legislative tariff squeeze

Spanberger to headline House Dem retreat

Vault: Crypto’s got a tax plan (and so do Democrats)

House Majority Forward sends $5M to Virginia redistricting effort

THE TOP

Trump’s legislative tariff squeeze

Happy Tuesday morning.

It’s State of the Union day. Our special edition previewing President Donald Trump’s sixth annual address to Congress will hit your inboxes at 10 a.m.

Secretary of State Marco Rubio is briefing House and Senate leaders at 3 p.m. at the White House, according to the State Department’s schedule.

OBBB 2.0? Passing a second reconciliation bill this year was always going to be hard.

But now it’s going to be nearly impossible.

A growing chorus of House and Senate Republicans want to use the fast-track budget reconciliation process to codify Trump’s global tariff regime following last week’s Supreme Court blockbuster decision.

Here’s the problem: There’s no chance that Speaker Mike Johnson and Senate Majority Leader John Thune can get enough Republican votes to pull this off. The math and the politics just don’t work. Don’t forget that Thune himself has expressed deep skepticism about broad-based tariffs like the ones Trump has doubled down on.

Yet if the GOP leadership tries to enact health-care policy or send more money to the Pentagon via reconciliation, there’s a group of hard-line Republicans itching to slip new tariffs into that package. Trump is sure to use his State of the Union address tonight to call on Congress to pass a new health care bill — which can only be done through reconciliation.

This presents GOP leaders with a serious dilemma.

The bull case for including tariff provisions in reconciliation is that they raise gobs of revenue to reduce the deficit or fund other priorities. The bear case is that a good chunk of Hill Republicans are deeply skeptical of their economic and political utility.

That tricky position is embodied in the divergent lines of thinking of Johnson and Republicans like Sen. Bernie Moreno (Ohio) and Rep. Jodey Arrington (Texas).

Moreno told reporters Monday that it’s an “indictment of the Republican Party” if GOP lawmakers can’t legislate tariffs through a party-line bill, arguing that Trump’s trade wars benefit working-class Americans.

“I’m hopeful that my colleagues, we can get to work on creating a reconciliation bill that does other things … but in that same bill would have a major pay-for, which would be to put these tariffs into legislation,” Moreno said.

Arrington, the House Budget Committee chair, said Republicans need to pass another reconciliation bill in order to address health care, housing affordability and fraud in federal programs.

But after last week’s Supreme Court ruling striking down Trump’s use of emergency trade authority to impose tariffs, Arrington belives any new reconciliation package should also codify tariff rates from Trump’s trade deals or the president’s across-the-board base tariffs.

“There are other things that I would expect we would include in reconciliation. Now this is just another piece of that,” Arrington said in an interview. “I’d call it the America First trade agenda.”

The GOP reality. Just listen to what Johnson told us Monday afternoon on the difficulty of finding GOP unity on tariffs, even with Trump pressing rank-and-file Republicans to support such a move.

“It’s going to be, I think, a challenge to find consensus on any path forward on the tariffs on the legislative side,” the speaker said. “And so, that is why I think you see so much of the attention on the executive side, the executive branch, of what they’re doing and how they’re reacting to the ruling and all the rest.”

Don’t forget that in the Senate, any reconciliation bill comes with a painful vote-a-rama at the end of the process. Democrats can force votes on politically uncomfortable topics just months before the midterms.

The eternally optimistic Johnson is one of the only leaders in the Capitol who still holds out hope for another reconciliation bill. Other top House Republicans are far more bearish.

This is sure to be a topic of conversation at the House GOP’s Elected Leadership Committee’s retreat this weekend in Fort Lauderdale, Fla. The full House Republican Conference is expected to discuss ideas for reconciliation at the party’s legislative getaway, March 9-11, in Doral, Fla. Trump is slated to be there too.

Republicans’ hurdles. Even beyond tariffs, Republicans don’t agree on what sort of reconciliation bill they want to put together. The midterm elections are growing closer. House GOP moderates are fed up and staging revolts. Trump’s poll numbers are bad and getting worse, even as he threatens a major military conflict with Iran.

In the Senate, there’s hefty skepticism about another reconciliation attempt.

Long before the recent tariff mess, Thune had expressed doubts — both publicly and privately — about the wisdom of doing another reconciliation bill. At the same time, Senate Budget Committee Chair Lindsey Graham (R-S.C.) was holding planning meetings to do just that.

The “Reconciliation 2.0” fervor intensified during last fall’s record-setting government shutdown. Conservatives approached Thune privately to advocate for another reconciliation bill as a way to neutralize Democrats’ health care demands. Their pitch was that Democrats would never agree to a health care bill at a 60-vote threshold because they wanted to use the issue against Republicans, so the only logical avenue was reconciliation.

But the Senate parliamentarian had already ruled that some of the conservatives’ health care ideas didn’t comply with the chamber’s rules for reconciliation. Plus, Thune has declared repeatedly that he’d oppose voting to overrule the parliamentarian.

— Jake Sherman, Laura Weiss and Andrew Desiderio

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HOUSE DEMOCRATS

Spanberger to headline House Dem retreat

After a primetime State of the Union response, Virginia Democratic Gov. Abigail Spanberger will head to Leesburg, Va., on Wednesday evening to address House Democrats at their yearly retreat.

Spanberger served three terms in the House before decisively winning her gubernatorial race in November. A Frontliner who consistently triumphed in a swing district, Spanberger is being touted as a top Democratic messenger as the party seeks to win back the House.

This year’s House Democratic retreat, held at the Lansdowne Resort from Wednesday to Friday, will focus on affordability, the top concern of voters heading into the midterms. Programming at the event — promoted with the slogan “fighting for an affordable America” — will feature sessions on how to lower the costs of groceries, housing, health care and utilities.

The speakers. Here’s a rundown of some of the panelists slated to speak on affordability:

Biden administration officials: Former CFPB Director Rohit Chopra, former OMB Director Shalanda Young and former Deputy Agriculture Secretary Xochitl Torres Small.

Union leaders: AFSCME President Lee Saunders, LIUNA General President Brent Booker, SEIU EVP Leslie Frane and International Brotherhood of Electrical Workers International Representative Matt Warren.

Nonprofit executives: Planned Parenthood Action Fund President Alexis McGill Johnson and National Alliance for Caregiving President Jason Resendez.

More details. On Thursday evening, author Ron Chernow and Subtack star Heather Cox Richardson will “reflect on America’s 250th anniversary and ground ourselves in this moment in American politics.”

House Democrats will view the latest immigration polling compiled by Blue Rose Research, Global Strategy Group, Navigator Research and FWD.us.

The DCCC will host a panel with Lakshya Jain of Split Ticket and Stephanie Valencia of Equis Research on the route to winning the majority.

House Democrats will also hear from representatives from the Black Economic Alliance, Center for American Progress, Groundwork Collaborative, National Low Income Housing Coalition, Protect Our Care, Third Way and Urban Institute.

We’ll note this is far from an A-list cast and Spanberger is the only top political leader speaking. This isn’t surprising, given Democrats are in the House minority.

We’ll be on the ground this week in Virginia and will have plenty of coverage in all our editions in the days to come.

— Max Cohen

Vault: Crypto’s got a tax plan (and so do Democrats)

First in Punchbowl News. One of the crypto industry’s leading trade associations has some notes to share with tax writers.

The Blockchain Association published a policy paper this morning outlining the sector’s priorities for tax policy. This is the industry’s next big legislative priority after its market structure overhaul, which remains on ice. GOP leaders of the tax committees are working on a crypto tax bill right now.

The association and its members will head to the Hill today to meet with a couple dozen congressional offices.

“To get to the peak of where this industry could go, to really see maximum growth, you’ve got to change the tax code,” Blockchain Association CEO Summer Mersinger said.

Get the memo. The top priorities will sound familiar. The Blockchain Association is seeking de minimis exemptions from taxes for low-dollar digital asset transactions. The Blockchain Association also wants to see purchases made using stablecoins treated like cash for tax purposes.

Other priorities include extending wash sale rules to digital assets, allowing for mark-to-market accounting for crypto and granting charitable deductions for crypto donations without requiring appraisals.

The association also wants to see tax writers “explicitly recognize” blockchain development as eligible for research and development tax credits.

Read the full memo here.

Meanwhile, in private equity. Senate Democrats have introduced their own proposal to ban private equity ownership of U.S. housing stock.

The effort, led by Sen. Elizabeth Warren (D-Mass.), follows the White House’s legislation circulated on the Hill last week to limit the private equity ownership of single-family homes. Conversations about adding that kind of prohibition to the ROAD to Housing Act are ongoing.

But the Democratic approach here is distinct and far broader. For one, much of it is organized around tax policy. The American Homeownership Act would prohibit large financial firms from receiving the tax benefits of depreciation and mortgage interest payments. The bill would also ban those firms from acquiring federally-backed mortgages and foreclosed homes. Read the 29-page bill here.

Warren told reporters she doesn’t expect this bill to necessarily hitch a ride with the ROAD to Housing Act. “I’m happy to move the private equity bill separately,” Warren said.

The ROAD to Housing Act is expected to get a vote on the Senate floor soon. It’s been in the mix for consideration this week, but that’s looking less likely after a snowstorm canceled votes on Monday.

– Brendan Pedersen and Laura Weiss

REDISTRICTING WARS

House Majority Forward sends $5M to Virginia redistricting effort

House Majority Forward, a nonprofit closely aligned with Democratic leadership, is sending another $5 million to the party’s redistricting referendum campaign.

That brings HMF’s total investment to $10 million ahead of the planned April 21 referendum in Virginia. Virginia voters will weigh in on a proposed state constitutional amendment that would allow the Democratic-controlled state legislature to temporarily disregard the bipartisan redistricting commission and gerrymander the commonwealth’s House map.

This effort could yield up to four new districts for House Democrats.

The party’s campaign, Virginians for Fair Elections, has already spent $5.3 million on ads, per AdImpact. The latest spots feature a former member of the state’s redistricting commission and a retired Army general endorsing the amendment.

Maryland. The filing deadline in Maryland is this evening, adding another wrinkle to Democrats’ push to get the state legislature to redistrict before the midterms.

The pressure campaign to push state Senate President Bill Ferguson, a Democrat, to redraw the state’s congressional map hasn’t worked. Despite entreaties from Maryland Democratic Gov. Wes Moore and House Minority Leader Hakeem Jeffries, Ferguson remains staunchly opposed.

One last hope lies in a little-used discharge petition process that could force the redistricting bill onto the Senate floor for a vote without Ferguson’s support. Former Attorney General Eric Holder urged Maryland senators to take this extraordinary action in an op-ed Monday in the Baltimore Sun.

Holder has been in contact with Moore and made calls to Democratic legislators, per a source familiar with those conversations. But 16 of Democrats’ 34 state senators would need to back a discharge petition and it’s not clear if that many support a redraw.

– Ally Mutnick and John Bresnahan

…AND THERE’S MORE

Vote watch. The House will vote on the ROTOR Act under suspension later today. We detailed in Monday PM the hurdles the Senate-passed bill faces after the Pentagon reversed course and came out against the legislation. House Transportation Committee Chair Sam Graves (R-Mo.) is also opposed to the bill, which was drafted in response to the deadly DCA crash last year.

News. BOLD PAC, the political arm of the Congressional Hispanic Caucus, is endorsing Democrat Analilia Mejia in the special election for New Jersey’s 11th District. Mejia won a high-profile primary earlier this month in a notable victory for the progressive left. We’ll note BOLD PAC didn’t endorse in the primary.

California endorsement. 314 Action Fund is endorsing California State Assemblywoman Jacqui Irwin in the open race for The Golden State’s 26th District. Irwin is running to succeed retiring Rep. Julia Brownley (D-Calif.).

Staff move. J.P. Freire is joining the State Department as chief of strategic communications and public affairs for the U.S. mission to the United Nations. Freire is moving to the Trump administration after more than six years as communications director for House Ways and Means Committee Republicans, including through the lead-up and passage of the One Big Beautiful Bill.

— Max Cohen and Laura Weiss

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