How bumpy is the road ahead?

Among the many issues the new administration will come face-to-face with on Day One is that of the federal budget. It is almost certain that the lame duck congress will enact only a short term spending bill thus setting the stage for what could be more significant action in early 2017—action on which the new administration will play a major role. Simultaneously, the administration will be crafting its own, first proposed budget, for fiscal 2018.

With a unified government, will we finally see a “grand bargain” that eliminates the current spending caps and deals with the longer term fiscal challenges we face, including the deficit, debt, and entitlements?

Will the first Trump budget largely mirror the current GOP budget proposal?  While the intuitive answers to both questions would seem to be “yes,” there are a number of reasons to think it might not be quite that simple or clean.

First, it is important to bear in mind the very significant differences that exist between the Trump and congressional Republican budget priorities and plans, at least as stated to date.

The President-elect has said he remains intent on launching a major jobs and infrastructure initiative in his first 100 days. At the same time, the current GOP budget proposal (which the congressional leadership continues to cite as their baseline), would reduce non-defense spending to its lowest proportional level in some fifty years.

And both the President-elect and Republicans on Capitol Hill have stressed the need to increase defense spending to address what they see as major gaps. This creates a difficult dichotomy, particularly since the combination of a major infrastructure initiative and increased defense spending will require the elimination of the current budget caps (either explicitly or, if they take the path of the Obama stimulus program, implicitly), and will almost certainly cause the deficit to rise, at least in the near term.

Similarly, the President-elect has made clear his commitment to not reducing Social Security or Medicare benefits, while the House Republican leadership continues to stress its commitment to aggressively addressing the entitlements question, including actually phasing Medicare out and replacing it with a private program. The two positions may not be mutually exclusive, but finding a common path forward will be complicated and, of course, face significant Democratic opposition.

Finally, there is the reality of the congressional balance of power; a majority in both houses does create a carte blanche for any president, particularly when the majority is neither filibuster- or veto-proof.

At the same time, there is a battle within the Democratic Party over its direction in the aftermath of the election. How that plays out will directly impact the Senate’s dynamics and how and where the Democrats will opt to make “a stand,” particularly in light of the new president’s need to, as rapidly as possible, move his cabinet and sub-cabinet nominees, and presumably a Supreme Court nominee, through the Senate.

Indeed, a lot of analysts believe that in order to move highly controversial legislation, the Republican leadership will need to take extraordinary steps, including reconciliation—the so-called “nuclear option”—which Senate Majority Leader Harry Reid was so roundly criticized for considering in recent years. But if and when to take such steps, how often, and at what cost all remain open questions.

Over the longer term, it does seem evident that we will see increased defense spending and greater downward pressure on non-defense agency budgets. The real question is how far and how fast. In the meantime, the road may not be as bumpy as it was, but it won’t be entirely smooth riding either.