Update 872– The Trump-Musk Meltdown:
Elon Attacks OBBB… But to Any Effect?
Yesterday, President Trump and Elon Musk’s disagreement over the projected deficit impact of Trump’s reconciliation package erupted into public view on social media. While the dust seems to have settled somewhat as of today, this split raises questions about Musk’s political influence going forward. And almost immediately, the rift underscores the faultlines the Senate is navigating regarding the OBBB proposal that cleared the House two weeks ago. Senators’ various objections to the bill remain unresolved, calling into question congressional Republicans’ self-imposed July 4 deadline for passage of the sweeping legislation that pairs cuts to crucial federal spending with trillions in tax cuts skewed toward the ultra-wealthy.
Also this week, Trump doubled steel and aluminum tariffs, threatening a downstream boost in consumer prices. This morning, the release of the May jobs report showed that the labor market remains strong despite nearly 60,000 federal jobs lost since January. The Senate also voted to advance the nomination of former Rep. Billy Long for Commissioner of the IRS out of committee and to confirm Fed Governor Michelle Bowman to Fed Vice Chair of Supervision in party-line votes. On the crypto front, things are heating up between Democrats and Republicans on the House’s centerpiece crypto legislation, the CLARITY Act.
Good weekends all…
Best,
Dana
Headline
Musk Slams OBBB as Senate Works to Build Consensus
The Senate has kicked off its reconciliation sprint, as committees begin to craft and release preliminary text of their changes to parts of the One Big Beautiful Bill Act (OBBB) following its narrow passage in the House two weeks ago.
But blindsiding the reconciliation process this week was billionaire and ex-DOGE official Elon Musk’s sudden and strong condemnation of the bill on deficit grounds, resulting in an all-out brawl between him and President Trump. Musk, who spent the last six months trying to cut government spending through DOGE, fired the first shot, calling the OBBB a “massive, outrageous, pork-filled… disgusting abomination.” Musk even went as far as to tell his followers to call their representatives in Congress to “kill the bill.”
The Trump administration, along with rank-and-file Republicans, argued that Musk opposes the bill because it repeals electric vehicle tax credits that benefit his company, Tesla. Musk received some support from fiscal hawks like Representative Thomas Massie (R-KY) and Senator Rand Paul (R-KY), who have expressed frustration of their own regarding the reconciliation bill’s fiscal impact.
As this fight between Musk and the administration played out in full social media view, CBO released scores for the reconciliation bill this week, estimating that the legislation would add $3 trillion to the deficit over 10 years, when over $500 billion in interest expense is included. The administration and Republican leadership claimed that the CBO is underestimating the growth effects of the legislation.
Beyond fiscal concerns that threaten the support of Republican Senators Rand Paul (R-KY), Ron Johnson (R-WI), and Mike Lee (R-UT), a number of other issues in the Senate negotiations remain unresolved, notably:
- SALT – House Republicans from blue states secured a higher, $40,000 cap on the State and Local Tax (SALT) deduction. The cap was set at $10,000 in the TCJA, and the increase to $40,000 is expected to reduce revenues by $320 billion over 10 years. Because there are no blue state Republicans in the Senate, there has been talk of softening the increase in the cap or getting rid of it altogether.
- Business Tax Provisions – Senate leadership and Finance Chair Senator Mike Crapo (R-ID) are pushing to make three business tax provisions (R&D expensing, bonus depreciation, interest deduction limitation) permanent. This could cost as much as $600 billion over 10 years, crowding out other Republican priorities or increasing the bill’s impact on the deficit. This week, President Trump himself suggested that the temporary structure would help frontload the resulting investment, signaling there may be disagreement between Senate Republicans and the administration on this issue as well.
- Healthcare – Some more moderate Republicans, including Senators Susan Collins (R-ME), Lisa Murkowski (R-AK), Josh Hawley (R-MO), Jerry Moran (R-KS), and Jim Justice (R-WV), are pushing to soften Medicaid cuts. This week, CBO estimated that the House-passed OBBB would result in 16 million more uninsured Americans – an upward revision of previous estimates that serves to validate their concern. At the same time, Senate leadership is also exploring ways they could strengthen Medicaid cuts and is even looking into “waste, fraud, and abuse” in Medicare to generate more savings and appease fiscal hawks. These reforms would not go over well with moderates and the general public.
- Food Assistance – There are also efforts to soften $300 billion in SNAP cuts included in the House-passed OBBB. Senators, including Senate Agriculture Chair John Boozman (R-AR), have expressed concern over shifting SNAP costs to the states and the potential impact of the cuts on vulnerable populations.
- Green Energy Tax Credits – The House-passed OBBB included $500 billion in savings by targeting green energy tax credits passed through the Inflation Reduction Act (IRA). Senators Thom Tillis (R-NC), Lisa Murkowski (R-AK), John Curtis (R-UT), and Jerry Moran (R-KS) wrote a letter to leadership in favor of protecting them, though plenty of Republicans oppose the Biden-era credits.
Any and all of these changes, likely necessary for the bill to clear the Senate, run the risk of upsetting the delicate balance of support for the bill in the House. For example, the House Freedom Caucus is demanding that the Senate generate more savings than the House proposal does, however, many of the reforms they are exploring are likely to increase the bill’s cost.
Congressional Republicans have set a self-imposed deadline of July 4 to send the OBBB to the President’s desk, meaning they have just one month to resolve differences that seem irreconcilable at this point.
Other Developments
Trump Doubles Steel and Aluminum Tariffs
On Wednesday, the President implemented a 50 percent tariff on all steel and aluminum imports, doubling the United States’ previous tariff rate. The President claims the hike in duties protects U.S. industries and that imported steel and aluminum threaten national security. Trump’s first term 25 percent steel and aluminum tariffs reportedly cost 75,000 manufacturing jobs.
Source: NYT
Major trading partners like Mexico and Canada expressed outrage following the announcement last week and have vowed to retaliate. As a part of a recent trade framework, the United Kingdom was granted an exemption from the hike. Steel and aluminum are critical products for manufacturers across the country. From canned goods to large household appliances, higher downstream costs to produce many products may soon be felt by American consumers.
On Wednesday, the Congressional Budget Office released its projections for Trump’s tariffs, finding that tariff increases announced through May 13 would reduce the cumulative deficit by $3 trillion over 10 years. It also estimated that the tariff policies would increase inflation by 0.4 percentage points in 2025 and 2026.
Commerce Secretary Howard Lutnick visited the Hill this week for an array of hearings. Notably, a heated exchange with Senator John Kennedy (R-LA) signaled continued frustration among Senate Republicans with Trump’s trade policy. When the Senator posed a hypothetical situation in which a country like Vietnam came to the U.S. suggesting a reciprocity offer in its purest form – a zero-for-zero tariff rate – Lutnick immediately said no. Perplexed by the idea that the U.S. would reject reciprocity and thus contradict one of stated goals of the President’s tariff regime, Senator Kennedy pressed in vain for Lutnick to disclose that countries with relationships to China that act as an intermediary to get Chinese goods into the U.S. would have to offer more than the removal of all tariffs.
This exchange came as the administration announced this week that U.S. trading partners should quickly send in their “best offers” to hasten the negotiation process. However, the legal basis for many of Trump’s tariffs hangs in the balance after two courts deemed the President’s use of IEEPA illegal. Other countries are likely watching the appeals process and evaluating if and how it undermines the administration’s leverage in negotiations.
The Commerce Department’s Bureau of Economic Analysis released April data on the trade deficit and found that the trade deficit narrowed by half while imports fell by 16.3 percent and exports rose by 3 percent. The fall in imports is the largest drop recorded and signals the end of stockpiles amassed by companies that raced to boost their inventory earlier in the year. Data is finally beginning to catch up with the tectonic shifts of Trump’s self-imposed reorienting of the global economy.
Source: Axios
On Thursday, the President spoke to Chinese President Xi Jinping amid escalating trade tensions between the two countries. Last week, the leaders began expressing that the other was violating a framework agreed upon in Geneva last month. This long-awaited call seemed to have no tangible outcome but may invite negotiators to reengage and settle some anxieties about a heightened trade war.
White House Sends Rescissions Package to Congress
This Tuesday, the Trump Administration sent a long-anticipated $9.4 billion package of funding rescissions to Congress for its approval. The rescissions primarily target foreign aid/USAID ($8.3 billion) and the Corporation for Public Broadcasting ($1.1 billion), which provides funding for NPR and PBS. While relatively small in size, this package marks the administration’s first attempt to ask Congress for its approval for withholding funds, something that it has largely been doing unilaterally to this point.
Rescissions packages – which are essentially the legal way for an administration to impound funds previously appropriated by Congress under the Impoundment Control Act (ICA) – allow the executive to withhold funding for up to 45 days, or until both chambers of Congress accept or reject the cuts through a simple-majority vote (no filibuster in the Senate). The administration and OMB Director Russell Vought have argued that the ICA itself is unconstitutional, despite their recent engagement with this process.
Congress is expected to take action on the rescissions package as early as next week, well before the 45-day deadline. Right now, the rescissions seem poised to receive the support of Congress, though some Republicans have taken issue with aspects of the package:
- Fiscal hawks – HFC members in the House and Rand Paul (R-KY) in the Senate – have criticized the package’s small size.
- Senators Susan Collins (R-ME) and Bill Cassidy (R-LA) stated opposition to the administration’s request to rescind funding for PEPFAR, which funds global AIDS relief.
The rescissions package comes as Musk and Trump had a public falling out, with Musk noting that increased spending in the House-passed reconciliation bill runs contrary to the goals of DOGE, and Trump arguing that the efficiency effort would have had greater success if they simply terminated government contracts for Musk’s companies, like SpaceX. As of this morning, Politico reports that White House aides are working to get the two men to reconcile, so whether this feud will last has yet to be determined. As it stands, this feud leaves the future of the administration’s efficiency efforts uncertain, though OMB Director Russell Vought has signaled his intention to send more rescission requests to Congress pending the success of the current package.
May Report: 139K Jobs Added; Unemployment Still 4.2%
Total nonfarm payroll employment rose by 139,000 jobs and the nation’s unemployment rate remained unchanged at 4.2 percent last month, according to the May jobs report released by the Bureau of Labor Statistics this morning.
Job growth in March was revised down by 65,000 jobs, from +185,000 to +120,000 jobs, while job growth in April was revised down by 30,000, from +177,000 to +147,000 jobs. With these revisions, job gains in March and April combined were 95,000 lower than previously reported.
Last month, the largest job gains came in:
- health care (+62,000 jobs)
- leisure and hospitality (+48,000 jobs)
- social assistance (+16,000 jobs)
Federal government employment declined by 22,000 jobs last month and is down by 59,000 since January.
The unemployment rate remained at 4.2 percent last month, unchanged from March and April. This is slightly up from an unemployment rate of 4.1 percent in February and 4.0 percent in January, respectively. The unemployment rate remains remarkably low and has remained fairly consistent between 4.0 and 4.2 percent for the past several months.
Today’s report indicates that the labor market remains strong but continues to show signs of cooling, while unemployment has remained relatively low and consistent over the past several months. The report comes less than two weeks before the Federal Reserve’s interest rate-setting committee, the Federal Open Market Committee, meets next to determine the fate of interest rates. The Committee has held rates steady this year after cutting rates by 100 basis points late last year. Today’s report alone is not likely to push the Committee to shift its trajectory. The Committee will also consider new inflation data to be released next week and, most consequentially, the projected impact of the Trump administration’s drastic and chaotic policy changes.
Nominations
Senate Finance Advances Former Rep. Long for IRS Chief
On Tuesday, the Senate Finance Committee advanced former Representative William (Billy) Long’s nomination for Commissioner of the IRS in a party-line, 14-13 vote.
Throughout the confirmation process, Long has faced Democratic concerns surrounding his:
- lack of tax policy experience,
- promotion of fraudulent Employee Retention Tax Credits (ERTC) and involvement with companies promoting fraudulent “tribal tax credits,”
- questionable campaign donations from individuals connected to those schemes, following news that Trump was planning to tap him to lead the IRS,
- and willingness to ensure the IRS remains independent from political influence.
Ultimately, Senate Finance Republicans, led by Chairman Mike Crapo (R-ID), defended Long’s nomination by arguing the claims of fraud were misfounded and that he is “uniquely suited to instill needed change at the IRS.”
Long’s nomination to lead the IRS now awaits consideration by the full Senate, and there is currently no indication that any Republicans will oppose it.
Fed Gov. Bowman Confirmed as Vice Chair/Supervision
On Wednesday evening, Federal Reserve Governor Michelle Bowman was confirmed as the Fed’s Vice Chair of Supervision in a party-line 48-46 Senate vote, with every Democrat voting no and six senators not voting.
The Vice Chair of Supervision – a role established through the Dodd-Frank Act in the aftermath of the 2008 financial crisis – is responsible for overseeing the regulation and supervision of financial institutions. Bowman will fill the position that former Fed Vice Chair of Supervision Michael Barr stepped down from on February 28, though Barr continues to serve as a Governor on the Federal Reserve’s board.
Bowman has served on the Fed’s board since 2018 and has a record of supporting dangerous deregulation and a light-touch approach to supervision and examination with detrimental outcomes for the safety and soundness of the banking sector and the broader economy. 20/20 Vision joined a group of public interest organizations in a letter urging the members of the Senate to oppose Bowman’s nomination ahead of the vote. Senate Committee on Banking, Housing, and Urban Affairs Ranking Member Elizabeth Warren (D-MA) highlighted the risk of advancing Bowman’s nomination at this particular moment, “just as President Trump has pushed the economy to the edge of a cliff.”
Hearings
HFSC and House Ag: The Future of Digital Assets
In what became the opening salvo in the debate over the GOP’s plans to pass a broad crypto regulatory framework bill, the Democrats and Republicans on the House Financial Services Committee and the House Agriculture Committee went back and forth on the benefits, or lack thereof, of the CLARITY Act. The CLARITY Act is the 119th Congress’s version of FIT21, a regulatory framework bill that primarily outlines how digital assets would be regulated and by whom. The CLARITY Act goes further than FIT21 in laying out the specifics of crypto regulation, perhaps most notably by putting considerably more digital assets under the definition of a “commodity” rather than a “security,” meaning that they would be regulated by the CFTC instead of the SEC.
As is the case with the GENIUS Act in the Senate, the CLARITY Act’s progression through Congress has hit a major stumbling block: Trump’s crypto entanglements. While digital assets held by politicians has not been the focus of either bill, Democrats have made Trump’s crypto dealings a focal point of their overall attacks on the administration for using its power to enrich Trump and his family, and Ranking Member of HFSC Maxine Waters (D-CA) made that abundantly clear in her opening remarks: “ As Americans grow poorer under Donald Trump’s failed policies, Trump and his family grow ever richer. 2.9 billion dollars richer. That’s how much his net worth has jumped as a result of his crypto schemes.” Waters followed this up by stating that the CLARITY Act does nothing to help with this or to provide regulatory clarity, stating that it would be better titled the “Complexity Act.”
Perhaps more worryingly for Chairman French Hill (R-AR), who introduced the bill, even fairly crypto-friendly Democrats such as Rep. Gregory Hill (D-NY) and Rep. Jim Himes (D-CT) were skeptical of the bill, once again broaching the issue of Trump’s crypto ties in their comments. While opposition from moderate Democrats would not be enough to kill the bill in the House, it does indicate that the CLARITY Act would face problems in the Senate, where it would need bipartisan support to get through the filibuster.
Look Ahead
Tuesday, June 10
- House Financial Services Committee markup
Wednesday, June 11
- May CPI report
- House Ways and Means hearing with Treasury Secretary Scott Bessent