May Governmental Outlook

Quick Fix —This is truly a make-or-break moment for the GOP’s tax package, which would extend trillions in expiring tax cuts and enact the president's tax priorities. — If lawmakers agree on any major changes or cuts to the SNAP program, it could jeopardize the farm bill reauthorization. — Health and Human Services Secretary Robert F. Kennedy Jr. continues to pursue the transformation of the $1.7 trillion department. Agriculture — The House Agriculture Committee is eyeing a May 7 markup for its section of the forthcoming reconciliation package, a bill that could include major cuts and changes to the Supplemental Nutrition Assistance Program. Lawmakers could also repurpose some of the billions in the Inflation Reduction Act for conservation to help pay for tax cuts and other GOP priorities.   — If lawmakers agree on any major changes or cuts to the SNAP program, it could jeopardize the bipartisan coalition historically needed for farm bill reauthorization. The current farm bill, which has already been extended twice, will expire in September.   — Senators will be considering Trump’s nominee for USDA’s No. 2 spot, Stephen Vaden. A judge for the U.S. Court of International Trade and former USDA general counsel, Vaden is expected to be confirmed, but not without some Democratic opposition. Also on deck for a confirmation vote is Tyler Clarkson, Trump’s pick to be USDA’s general counsel. Lawmakers are under pressure to get more of Trump’s nominees in place, so expect a confirmation vote for Luke Lindberg to be undersecretary for trade and foreign affairs and for Devon Westhill to be assistant secretary for civil rights.   — Agriculture Secretary Brooke Rollins has said to expect her plans for reorganization of the massive department. Federal employees who opted into the Differed Resignation Program 2.0 are rolling off, and USDA is expected to announce further reduction-in-force plans. The cuts could drastically reshape the programs and services USDA offers.   — Trump’s trade battle with China is continuing to cause alarm among farmers, who are already seeing the nation’s third-biggest trading partner rejecting shipments of pork. — Marcia Brown Trade — The Trump administration is scrambling to negotiate agreements with dozens of trading partners, after it paused “reciprocal” tariffs the president rolled out on April 2. Those tariffs went into effect on April 9 before Trump quickly suspended the tariffs for 90 days for all trading partners except China. China now faces a minimum 145 percent tariff on all its exports to the U.S.   White House officials have boasted that more than a dozen countries have put offers “on the table” to avoid the tariffs scheduled to kick back in on July 8.   But the documents other countries have submitted to the White House are far from final offers, according to a dozen foreign diplomats and three officials, granted anonymity to discuss the sensitive conversations. Rather, they are preliminary outlines of what their governments are willing to discuss in the trade talks, something the Trump administration has made a prerequisite for pursuing any further negotiations.   — The administration is under growing pressure to demonstrate progress on the talks as Trump’s existing tariffs on China, as well as 25 percent tariffs he has imposed on steel, aluminum and auto imports, begin to drag down the economy.   Vice President JD Vance last week celebrated an agreement between the U.S. and India on “terms of reference” for trade talks, effectively setting the parameters to start deeper work on a deal. The White House has hinted that India will be first to ink what administration officials have described as a “memorandum of understanding” or broad “architecture” for further negotiations — which they acknowledge could take weeks or months.   But some countries are raising questions about whether they can even reach that kind of general agreement at the breakneck pace Trump has mandated. Bessent has hailed negotiating progress with South Korea, but South Korean officials have told the U.S. that it is “theoretically impossible” to reach a deal before the country holds its elections in June, according to Reuters (the country currently has a caretaker government after their former president was impeached.) — Dan Desrochers and Ari Hawkins Financial Services — No playbook: The dual threat of spiking inflation and a sharp slowdown in economic growth is poised to be a massive headache for Federal Reserve Chair Jerome Powell as he reckons with the consequences of President Donald Trump’s trade war. The markets overwhelmingly expect Fed policymakers to hold interest rates steady when they meet on May 6-7, but investors will be watching closely for any signal on how the central bank could respond if tariffs cause prices to surge or layoffs to accelerate. Wall Street analysts are warning of inventory shortages and higher production costs as imports from China crater, which could spur inflation.   — If Trump’s policies trigger stagflation — when inflation surges even as growth stalls — Powell & Co. would face the impossible challenge of having to quell rising prices and a softening labor market simultaneously. And while the economy remains on relatively stable footing for now, most economists believe stagflation is an increasingly likely outcome if the trade war isn’t quickly resolved.   — Bessent, crypto on agenda: House Financial Services Republicans are expected to release text for a cryptocurrency market structure bill that would divvy up the oversight of digital assets between market regulators. Treasury Secretary Scott Bessent will also appear before the committee this month to provide his annual testimony on the state of the international financial system. The panel will host two markups at the end of the month and hearings on innovation and the future of digital assets, bank mergers and new bank formation.   The Senate Banking Committee will have a hearing on examining insurance markets and the role of mitigation policies. May is also small business month, and the House Small Business Committee will host hearings on private equity, franchising and a small business showcase at the end of the month.   — Debt limit X-date: Bessent is scheduled to offer lawmakers more clarity on when the Treasury Department expects to run out of cash to pay the nation’s bills. Treasury has deployed extraordinary accounting maneuvers to give itself extra headroom to avoid breaching the statutory debt limit and avert a default on the nation’s debt. Bessent’s forecast will carry extra political importance this year because it creates a de facto deadline for Republican plans to raise the debt limit as part of the GOP reconciliation package that includes their policy priorities.   — CFPB chief: The Senate is expected to confirm Jonathan McKernan to lead the Consumer Financial Protection Bureau. The veteran regulator would be taking over an agency at the center of the Trump administration’s campaign to slash the federal bureaucracy. Acting Director Russ Vought ordered staff to halt all work before culling probationary employees. A federal court has paused mass firings for now, but the administration has appealed that ruling. — Mark McQuillan Tax — This is truly a make-or-break moment for the GOP’s tax package, which would extend trillions in expiring tax cuts and enact Trump’s tax priorities. The House Ways and Means Committee is expected to put the finishing touches on the tax provisions next week. In particular, Chair Jason Smith (R-Mo.) will have to resolve some of the most politically difficult conflicts that could hinder the tax bill going forward: namely, the fight to include state and local tax relief and the battle over repealing the Inflation Reduction Act’s clean energy credits.   — House Speaker Mike Johnson and the rest of GOP leadership has been pushing the tax committee to vote on its portion of the party-line bill next week. However, Smith has deflected questions about when he might schedule the markup. The committee does have to wait, in part, for panels like the Agriculture and Energy and Commerce committees to resolve politically perilous fights over steep spending cuts. That’s because the House budget makes its planned $4.5 trillion in tax cuts contingent on the GOP being able to muster $2 trillion in spending cuts.   — Treasury Secretary Scott Bessent also said on Monday that the department expects to have an updated calculation of the so-called X-date later this week or next week. That’s the date when Treasury will have exhausted all cash management strategies to avoid a default on the national debt. The department will be keeping a close eye on incoming tax receipts to calculate the updated figure. — Benjamin Guggenheim Energy — Reconciling on energy incentives: House Republicans will have their hands full as they try to squeeze billions of dollars out of the Biden administration’s clean energy incentives to help pay for trillions in tax cuts in their budget reconciliation package. For years, the GOP lawmakers have sworn they would eliminate Democrats’ climate spending at their first opportunity — but while agencies like Trump's EPA are working to claw back money, many House members have become wary of pulling the rug out from under manufacturing or power production incentives that are benefiting their districts.   — While hardline conservatives in the chamber would like to yank out the Inflation Reduction Act’s clean energy spending root and branch, other Republicans would prefer a more nuanced approach. That means trimming the spending by tweaking the rules, which could include any of three strategies: bringing forward the sunset for the technology-neutral tax credits from their current 2032 expiration, tightening eligibility for qualifying by limiting foreign participation, or curbing the transferability of the credits to dampen the tax equity markets used to raise money to build new projects.   Whatever moves the House Republicans make, they’re virtually certain to have to get a consensus since their majority is down to three votes. And they’ll have to contend with accusations from Democrats that they are hemming in new electricity production — just months after Trump declared an “energy emergency” that required a massive new power generation buildout. — Matt Daily Employment and Immigration — Republicans’ party-line spending bill is relatively light on labor policy, with the key exception of Trump’s signature proposal to exclude tipped wages from federal income taxes.   Trump has also floated plans to carve out overtime and Social Security payouts, though those are less front-of-mind for the president, a former casino owner and a fixture of the hospitality industry for decades.   — All are very pricey asks, one of the biggest hurdles for GOP lawmakers as they hammer out a deal that can assuage moderate and deeply conservative Republicans — and comply with the arcane rules that govern the budget reconciliation process.   — Economists are generally cool to the idea of exempting tips or overtime from workers’ tax bill, arguing that they skew wages in several ways, such as exacerbating different pay scales for fast-food cashiers and sit-down restaurant wait staff, and are not an optimal way to achieve the goal of benefiting working-class Americans.   — May is shaping up to be a crucial stretch for the GOP if it hopes to pass a package this summer. Doing so would give Labor Secretary Lori Chavez-DeRemer a tangible benefit to sell to local communities as the Trump administration tries to spur a domestic revival in manufacturing that it hopes will create thousands, if not millions, of jobs, though such investments will take time to come to fruition. — Nick Niedzwiadek Education — Reconciliation education plans: House Education and Workforce Committee Republicans advanced its plans for the GOP budget bill, inching the party closer to enacting Trump’s domestic agenda for tax cuts, border security and defense. In addition to making wide-ranging changes to the federal student aid system, the plan would also address an upcoming funding shortfall for a program serving low- and middle-income college students. The Pell Grant program is projected to hit a $2.7 billion deficit heading into fiscal 2026. The Republican-led plan to patch the shortfall would authorize $10.5 billion in funds over three fiscal years and modify eligibility to the program.   The tax-writing House Ways and Means Committee is expected to meet this month to consider its portion of the reconciliation bill. That measure could include a $10 billion school choice tax credit incentive and an increase to the university endowment tax.   — Antisemitism crackdown: The House education committee is set to haul more college presidents to Capitol Hill this month. The presidents of California Polytechnic State University, San Luis Obispo; Haverford College and DePaul University are expected to testify before Congress. The selection of these universities marks a notable expansion of scrutiny beyond Ivy League institutions. — Pro Education Staff Defense — Pentagon boost teed up: A Republican plan to ladle an extra $150 billion onto the Pentagon budget is a bright spot of agreement in a GOP megabill that has divided the House and Senate.   The defense portion of the legislation advanced this week when the House Armed Services Committee approved the measure. It will next be merged with other committees' measures into a single bill that GOP leaders aim to bring up for a House vote in the coming weeks.   — The measure includes $34 billion for Navy shipbuilding efforts, $25 billion to implement Trump's Golden Dome missile defense plan, $13 billion to modernize nuclear weapons, $9 billion to improve quality of life for troops and military families, and $5 billion for the military's expanded border security mission.   — The Senate Armed Services Committee hasn't yet announced plans to mark up the measure. — Connor O'Brien   Health Care — Department of Health and Human Services: Over the next several weeks, Secretary Robert F. Kennedy Jr. will continue to pursue the transformation of the $1.7 trillion department. The Trump administration is considering a more than 30 percent cut to the HHS budget, slashing public health initiatives across the board. The focus now moves to Kennedy’s overhaul of the agency, including how cuts align with HHS’s duties and Kennedy’s own goals of cutting chronic disease rates. Also, Kennedy has agreed to appear before the Senate Health, Education, Labor and Pensions Committee this month, when he is likely to be asked not just about the agency cuts but HHS’s undertaking of a major study to find the cause of autism, much to the chagrin of some autism advocates who believe he is focused on the wrong thing. Kennedy has said the study will be conducted by September.   — National Institutes of Health: A leaked budget proposal suggests the Trump administration is trying to drastically downsize and reorganize the agency. In addition to proposing a consolidation of NIH's institutes and centers, the draft plan suggests cutting discretionary funding to about $27 billion from a current budget of about $47 billion and shuttering several centers, including the National Institute on Minority Health and Health Disparities. Also important is how an HHS directive to cut contract spending by 35 percent will impact the agency, research and programs it supports.   — The Centers for Medicare and Medicaid Services: CMS is shifting under new Administrator Dr. Mehmet Oz. Of particular interest: major changes at payment models to find greater savings under Medicare and how the administration’s intense focus on fraud will impact not only the agency’s bottom line but also its services. Separately, reconciliation will come to a head in the House Energy and Commerce Committee markup next week.   — Food and Drug Administration: The Trump administration has hit the health care regulatory regime — including at the FDA — with deep job cuts that raise concern about whether such moves would hobble the agency’s efforts to fulfill its obligations. We are keeping close tabs on drug pricing measures and whether they find their way into the reconciliation package now being negotiated as well as how medical product manufacturers lobby the White House for exemptions from tariffs. — Pro Health Care Team Technology — Dazed and confused: Trump’s tariffs flip-flop has left the tech industry puzzled on what the curbs mean for their businesses’ bottom lines, and tech lobbyists scratching their heads on who to call in Washington to get their priorities heard (hint: few are getting their calls returned, and little clarity has been offered for those in touch with the White House).   Tariffs confusion has also sent tech stocks into tumult, as Apple — which manufactures and produces most of its iPhones in China — scrambles to sort out expected supply chain issues and Nvidia’s cheap chips made for the Chinese market face an existential threat.   K Street is now throwing its weight behind Hill Republicans who have Trump’s ear, such as California Rep. Jay Obernolte, who has emerged as the tech industry’s hotline to the White House, as POLITICO exclusively reported earlier this month.   — A tariff silver lining: Despite the general sense of pessimism lingering over K Street, parts of the tech industry are cautiously optimistic Trump will use his tariff policy as a blunt-force instrument to push against foreign digital regulations they feel unfairly target American tech companies.   In late April, the European Commission fined Apple and Meta nearly $800 million for violating its digital competition rules, which Meta and tech lobbyists immediately spun as a “tech tariff.”   — AI action: Trump’s promise to replace his predecessor’s AI policies with an “AI Action Plan” is moving forward. Expect early drafts of the plan to circulate internally by July. Additionally, the Energy Department has identified 16 potential federal land sites for building datacenter infrastructure. It’s seeking public input on the suitability of these sites until May 7. And the Trump Office of Management and Budget put out a federal buying plan that puts acquisition speed and market competition at the heart of the AI vendor landscape. — Take two on data privacy in Vermont: Vermont lawmakers are trying again to pass a comprehensive data privacy law after Republican Gov. Phil Scott vetoed last year’s bill. Lawmakers believe they’ve addressed the governor’s main issue by removing language allowing residents to sue businesses for violating the privacy law.   Enforcement would be solely left responsible to Vermont’s attorney general under the bill.   It still contains protections that privacy advocates support such as the right to opt out of targeted advertising and limiting what companies can use people’s data for. Vermont’s legislative session is expected to wrap up by the end of May.   — All eyes on the Commerce Department: May is shaping up to be a big month for the Commerce Department’s National Telecommunications and Information Administration. The Senate is expected to confirm Arielle Roth to head the NTIA. Roth, a top telecom staffer for Senate Commerce Chair Ted Cruz (R-Texas), cleared the Senate Commerce Committee in a 16-12 vote on April 9.   Her arrival at NTIA will likely come right around the time it issues new guidance for the $42.45 billion broadband expansion effort called the Broadband Equity, Access, and Deployment program. NTIA recently announced a 90-day extension for states to finalize their BEAD proposals, giving extra time to account for Commerce Secretary Howard Lutnick’s plans to cut red tape and change some of the technology preferences — a move that will likely allow more money for satellite broadband like Elon Musk’s Starlink service.   — An FCC majority for Carr?: Telecom watchers will also be closely watching the nomination process for Olivia Trusty, tapped to assume a Republican seat at the Federal Communications Commission. The Senate Commerce Committee advanced her nomination on April 30, which could allow for Senate confirmation this month. Her confirmation will give FCC Chair Brendan Carr a GOP majority at the agency, allowing him to pursue more partisan votes. — Brendan Bordelon, Gabby Miller, Mohar Chatterjee, John Hendel and Alfred Ng   Cybersecurity — As May kicks off, Congress returns to Washington for a packed schedule of hearings and legislative considerations, while the cyber community converges on San Francisco for a key summit.   Cyber professionals locally and globally are finishing up a packed week in San Francisco for the annual RSA Conference, which wraps on May 2 and includes speeches from top government and industry officials. Politico’s cyber team will be providing full coverage on the ground.   — Capitol Hill lawmakers return from a two-week recess to focus on numerous cyber and technology issues. This includes a subcommittee hearing this week under the House Foreign Affairs Committee to examine the future of cyber diplomacy at the State Department. This hearing is taking place a week after Secretary of State Marco Rubio announced a major reorganization of the agency, which includes the creation of a new Bureau of Emerging Threats, which could potentially take over some of the oversight currently under the Bureau of Cyberspace and Digital Policy.   — In addition, work surrounding reauthorization of the Cybersecurity Information Sharing Act, set to expire later this year, is ramping up. Rep. Andrew Garbarino (R-N.Y.), chair of the House Homeland Security Committee’s cyber subcommittee, said last month that he planned to soon hold a hearing on renewing the bill, which is a cornerstone in allowing the private sector and government to share cyber threat information. Leaders on the House Intelligence Committee are also focused on moving the bill quickly through the reauthorization process.   — Several key cyber nominations may also make progress in the Senate Homeland Security and Governmental Affairs Committee this month. These include the nominations of Sean Cairncross to serve as the next national cyber director, and Sean Plankey to helm the Cybersecurity and Infrastructure Security Agency. A date has not been set for either nomination hearing, and both are pending confirmation.   — And lastly, CISA is among the agencies continuing to face steep cuts due to efforts by the Elon Musk-led DOGE, following the end of a deferred resignation period. It remains to be seen how many CISA staffers accepted these offers and how much of the agency may be impacted by future cuts. — Maggie Miller