By Eric Schmutz
It is normal for the first 100 days of a new administration to create a lot of activity in Washington, but the first six weeks of President Donald Trump’s administration are proving to be busier than normal – and with looming deadlines ahead, things do not appear to be slowing down.
After issuing a delay in February, the president’s 25% tariffs on goods from Canada and Mexico, as well as an additional 10% tariff on Chinese imports, went into effect on March 4. Both Canada and China have implemented retaliatory tariffs on U.S. imports to those countries and Mexico is expected to announce their retaliatory measures on March 9.
According to market analysts, construction firms are already experiencing higher prices for lumber and steel, adding further pressure on new construction for commercial real estate. Tariffs on steel and aluminum imports of 25% are scheduled to take effect on March 12.
On March 4, the president delivered his first address to the joint session of Congress since his swearing-in on Jan. 20. In the address, he explained his priorities for spending, border security funding, tariffs and tax reductions. One tax cut highlighted in the speech that would be a benefit to commercial real estate is full and immediate deductions for capital investments. The president also explained that he would like the deductions to retroactive to Jan. 20, 2025.
While the president’s executive orders and tariff declarations have consumed most of the news coverage in Washington, he will need Congress to turn his campaign priorities into law and pass appropriations to fund the operations of the federal government. This is what makes last week’s odds-defying victory by House Speaker Mike Johnson in passing his conference’s Fiscal Year (FY) 2025 budget so significant. By a vote of 217-215, Johnson was able to maintain near unanimity in his conference with only one Republican defector.
The House resolution includes a $4 trillion increase in the debt limit and $2 trillion in spending cuts over the 10-year budget window. The House Republican’s budget resolution also includes the framework for renewal of the president’s 2017 tax reforms, which could include many of his tax reform promises from last year’s campaign.
Unfortunately for Johnson, victories in Washington are often short-lived and he must now focus on resolving differences with Senate Republicans who passed their own budget resolution on Feb. 21, which outlines proposed spending of $340 billion aimed at immigration enforcement, military expansion and energy production, but does not include a framework for tax legislation.
Because Democrats are opposed to extending the 2017 tax law, as well as the Republican’s expected spending reductions, both the House and the Senate must pass identical budget resolutions in a process called budget reconciliation. This legislative maneuver allows fiscal legislation to bypass the Senate filibuster rule, which requires 60 votes before legislation can be considered in that chamber.
Adding pressure to the negotiations, the current federal funding expires on March 14. Johnson and Senate Majority Leader John Thune have both voiced support for a “clean” continuing resolution which will continue funding the federal government through Sept. 30, at FY2024 levels, without trying to codify any cuts made by Elon Musk’s Department of Government Efficiency (DOGE) team. However, because a number of House and Senate Republicans have voiced opposition to continuing funding at levels agreed to by former President Joe Biden last year, Democratic votes will most likely be necessary to pass any spending legislation for the current fiscal year.
Democratic leadership has claimed that their support will not come without concessions from Congressional Republicans, as well as Trump. If an agreement is not reached before 11:59 pm on Friday night, March 14, there will be a government shutdown until an agreement can be reached.
As if those challenges were not enough, the federal government reached its $36.1 trillion borrowing authority in January, causing the Treasury Department to begin using “extraordinary measures” to continue paying the government’s bills without borrowing more money. These measures are temporary and are expected to last until sometime in the spring or summer, depending on the tax revenue received this spring.
If Congress does not act to raise or suspend the debt limit before these measures are exhausted, the U.S. could face severe financial and economic consequences, including a potential default on its debt. This will negatively affect the bond market and could potentially further tighten the already difficult credit market.
Historically, deadlines have provided the necessary pressure for members of Congress to end their brinksmanship and pass essential legislation. The current party ratios and partisan differences increase the challenges for Republican Congressional leaders and will require Trump to engage with Republican legislators to ensure their support of his priorities. When and how he chooses to do so will determine the success of his second term in office.
