Cozen Currents: Democrats Struggle Over Where to Draw the Line

“Democrats are struggling with how and when to resist President Donald Trump’s agenda. And it doesn’t help their cause that Trump is unifying the House GOP’s own notoriously fractious caucus.”      — Howard Schweitzer, CEO, Cozen O’Connor Public Strategies

The Cozen Lens

• The recent fight over government funding exposed deep divisions among Democrats as they face President Trump. Meanwhile, congressional Republicans are the most unified they’ve been in recent years.
• Faced with competing pressures to make the Tax Cuts and Jobs Act’s expiring provisions permanent while also offsetting the cost, GOP lawmakers are eyeing an accounting trick that would zero out the deficit impact on paper of an extension of current tax policy.
• President Trump is not shy about making it known he would prefer a low interest rate environment. With his repeated efforts to pressure the Federal Reserve raising questions about the central bank’s independence, this issue is likely to come to a head with Trump’s selection of Fed Chair Jerome Powell’s replacement in 2026.

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Democrats in Disarray, GOP in Array, or Both?

A Divided Party. Democrats are in disarray as they confront President Trump’s second term.

• Frustration in the Democratic Party is growing over what some perceive as an insufficiently strong response to Trump and congressional Republicans as they move quickly to enact the president’s agenda. Democrats have been unable to land on an effective messaging strategy to oppose Trump and DOGE. Democratic members of Congress were met by angry constituents at town halls last week demanding that they fight back harder.
• Senate Minority Leader Chuck Schumer’s (D-NY) acquiescence to the House GOP’s full-year FY25 continuing resolution (CR), which prevented a shutdown, has fueled a backlash. Two House Democrats, Reps. Glenn Ivey (D-MD) and Delia Ramirez (D-IL), have called for Schumer to step down. This can be considered symbolic but is an indicator of growing discord in the ranks. Former House Speaker Nancy Pelosi (D-CA) jumped into the fray, saying “I myself don’t give away anything for nothing.”
• The race for the 2028 Democratic presidential nomination is wide-open. Some potential candidates attacked Schumer last week over his decision, including Governors JB Pritzker (D-IL) and Tim Walz (D-MN), the Democrats’ 2024 vice-presidential candidate. Strong anti-Trump credentials may be an asset in the Democratic presidential primary.

Singing from the Same Song Sheet. The House GOP is the most unified it’s been in recent memory.

• Due to their divisions, House Republicans have been unable to enact the basic tasks of governing, like spending bills, on their own in recent years. Two previous Republican speakers, John Boehner (R-OH) and Kevin McCarthy (R-CA), departed the speakership amid a clash with the right flank over spending.
• The 119th Congress is different. Speaker Mike Johnson (R-LA) has been able to unify the majority for key votes. Johnson passed the House’s budget resolution and the CR, with little room to spare. Sticking close to Trump, who has deep influence in the House GOP, has helped him thread the needle. Trump’s advocacy for the budget resolution helped it pass as fiscal hawks who usually don’t like short-term spending bills fell into line after Trump backed the CR. Reconciliation will be a new and different challenge for Johnson as the GOP is showing early that they are not on the same page.
• Johnson’s strong track record in unifying his House majority weakens Democrats’ power because he does not need their votes for must-pass bills. This removes one of the few points of leverage that Jeffries and the minority party could have.

Implications. The new dynamic of Democrats’ disarray and GOP unity strengthens the majority party’s hand for the next spending fight.

• Schumer will face the same dilemma in just a few months when Congress considers spending bills for FY26, which begins October 1st. Fiscal hawks would like to pass all 12 appropriations bills via regular order before September 30th (though this hasn’t happened since 1997).
• The Democratic base is spoiling for a fight with Trump, but if Schumer plays brinkmanship, he could risk a shutdown that may have nothing tangible to show for it. Nevertheless, the base may want to see leadership put up a show of resistance, regardless of the consequences. During both the Biden and Obama Administrations, Republicans in Congress shut down the government multiple times in an effort to align with parts of their base demanding resistance. Their stated goals, such as the repeal of the Affordable Care Act, were never realized.
• The 60-vote threshold to defeat the Senate filibuster ensures the minority party a voice in spending. But if Johnson maintains House GOP unity, he could jam Senate Democrats again like this month. Codifying DOGE cuts will be a further complicating issue.

What a “Current Policy Baseline” Means and Why It Matters

Budgetary Scoring and Reconciliation. Federal budgetary accounting and scorekeeping is traditionally handled by the Congressional Budget Office (CBO) which provides annual reports on federal spending as well as analysis of the fiscal impact of individual legislative proposals.

• While lawmakers often ask the CBO for a score of the fiscal impact of their own or other’s legislative proposals, the CBO plays an outsized role in the reconciliation process due to the legislative procedure’s unique constraints. According to the Senate’s Byrd Rule, policy provisions within a reconciliation bill must have a more than “merely incidental” fiscal impact and cannot increase the federal deficit outside of the traditional 10-year budget window outlined in the bill. Lawmakers use the CBO’s scores of various policy proposals to determine if they violate the Byrd Rule and therefore would be subject to a point of order during Senate consideration.
• To determine the fiscal impact of a policy change, whether it’s in reconciliation or not, the CBO typically uses what’s known as a “current law baseline.” To do this, CBO assumes that the current law will remain the law, including the various expiration dates of federal tax and spending policy, and then evaluates any proposed policy changes against the current law. For tax policy like the Tax Cuts and Jobs Act (TCJA), which has several provisions set to sunset at the end of this year, the CBO assumes they will expire as written into law. Proposals to extend the TCJA are therefore scored as having a deficit impact since they would be a change to the current law. A handful of other spending programs that are frequently renewed, such as the Supplemental Nutrition Assistance Program (SNAP), are scored using “current policy” in which it’s assumed that lawmakers will extend the programs for the full duration of the budget window even if the law sunsets them earlier.

A Novel Use of the Current Policy Baseline. Senate GOP lawmakers are pushing for an extension of the TCJA to be scored using the current policy approach, arguing that it should be assumed that existing tax policy will be extended, just as it’s assumed by the CBO that Congress will always renew SNAP.

• Originally proposed by Senate Finance Committee Chair Mike Crapo (R-SD), the vast majority of Senate Republicans, Senate Majority Leader John Thune (R-SD), House Speaker Mike Johnson (R-LA), and President Trump are all supportive of the idea of using a current policy baseline to score an extension of the TCJA in reconciliation. In doing so, CBO would no longer score a TCJA extension as a roughly $4 trillion proposal, but instead as a roughly $0 proposal since the baseline used to score the policy change would assume that lawmakers wouldn’t allow TCJA to expire in December as it’s currently set to. That $0 score is critical to Senate Republicans’ plans to make the TCJA’s tax cuts permanent. Permanency inherently would extend the tax cuts beyond the reconciliation bill’s 10-year budget window, something that lawmakers can only do with provisions that don’t impact long-term deficits per the Byrd Rule.

The Deficit is Still the Deficit. While changing the budgetary baseline used to score an extension of expiring tax policy can change a bill’s budgetary score, or its on paper cost, it won’t alter its actual impact on the federal deficit.

• The Committee for a Responsible Federal Budget estimates that the reconciliation bill would grow the deficit by between $3.4 and $4.6 trillion if the current policy baseline is used. As such, the push for the baseline change is angering some fiscal conservatives. When asked about the baseline change by Politico this month, House Freedom Caucus Policy Chair Chip Roy (R-TX) said, “This is fairy dust, and they’re full of crap. And I’m gonna call them out on it.” Other lawmakers, including House Ways and Means Committee Chair Jason Smith (R-MO), are also questioning whether the use of a current policy baseline would violate the Senate’s Byrd Rule.
• If the baseline switch isn’t made and GOP lawmakers are stuck with traditional accounting methods, the party will need to make tough choices as to how to fit a roughly $5 trillion tax agenda into the reconciliation bill. The House-adopted budget resolution only allows for a $4.5 trillion deficit impact of the tax provisions, leading lawmakers like Smith to suggest that they may only be able to extend the TCJA’s expiring provisions for eight or nine years.

Trump and the Politics of the Fed

No Love Lost Between Trump and Powell. There is little love lost between President Trump and Federal Reserve Chair Jerome Powell, but the two men combined have significant control over the future of the US economy.

• While Trump was aggressive in his attacks on Powell and the Fed’s policy during his first term, he has been more muted to start his second term. Still, there is little belief that Trump is changing his tune on Powell or plans to offer him another term as Fed chair after his chairmanship ends next May.
• Following last week’s decision by the Fed not to change rates, Trump argued in a post on Truth Social that the central bank “would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy.” Compared to Trump’s past criticism, this remark is on the tamer side but could signal a potential clash in the months ahead.

The Elephant in the Room. While questions about the Fed’s independence may rise this year, it is more likely that any serious threat to the central bank’s apolitical nature will occur in 2026, after Powell’s term as chair ends.

• Powell’s top priorities at the Fed are protecting its image as an apolitical institution and securing his own personal legacy. Powell has already shown that he will not bend to Trump’s pressure and will instead rely on economic data to guide decisions on rate policy. This does not mean that Powell’s and Trump’s views may not align, but if they do, it is because of what the data is telling Powell, not because of what Trump is calling for.
• It seems increasingly unlikely that Trump will seek to replace Powell early. Still, an announcement of his replacement will likely be made early next year to prevent a rushed confirmation process before the end of Powell’s term in May. While candidates have yet to emerge, Trump will likely select a nominee who will favor a more dovish policy and be more open to being influenced by Trump’s preferences.

The Senate’s Advice and Consent. A key variable in determining whether Trump will have his unfettered choice of candidate to lead the Fed will be whether the Senate is willing to confirm his selection.

• During Trump’s first term, nominees for the Fed were an area that sparked some of the most resistance from the Senate. The chamber went so far as to block some of the president’s most controversial nominees, such as Judy Shelton, who has advocated for a return to the gold standard, from confirmation.
• However, the Senate’s makeup this time has changed, and some of the institutionalists who opposed those nominees have since left the chamber and been replaced by more MAGA-minded senators, which could increase the likelihood that some of these previously blocked candidates, or similarly controversial ones, could be confirmed in the current Senate. Still, some Republicans have said that Fed independence is important to them. However, depending on how controversial Trump’s nominee is, they may have to choose between their commitment to the Fed’s independence and staying in Trump’s good graces.

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