Update 877 – Rulings and OBBB Process,
Mamdani Win, Prices, Entitlement Reports
The Senate parliamentarian continued her review of the GOP’s reconciliation bill (OBBB) this week, shooting down Medicaid cuts crucial to the fiscal balance of the bill. This straw may have broken the camel’s back, as calls to overrule or dismiss the Senate’s referee following the ruling have spread from House to Senate Republicans. The drafting delays in “curing” this and other provisions cast doubt on the GOP’s ability to get the bill to Trump’s desk by his self-imposed deadline of July 4. But the real deadline is August recess, as Republicans are trying to raise the debt limit in the OBBB, something Treasury Secretary Bessent says needs to be done by then to avoid a resulting default.
In other developments, Zohran Mamdani declared victory in the New York City Democratic mayoral primary on Tuesday in an upset for Former Governor Cuomo, who was considered the front-runner for most of the race. New data released this week shows that the U.S. economy contracted in the first quarter by 0.5 percent, more than previously estimated, while inflation ticked up slightly last month ahead of a likely tariff-driven increase in the coming months. And the entitlement Trustees released their annual report last week, projecting that the programs will face insolvency in 2033. We cover these developments and key Hill hearings this week below.
Good weekends all…
Best,
Dana
Headline
Reconciliation and the Rulings
The Senate made little tangible headway on reconciliation in the latter half of this week, with a flurry of parliamentary rulings requiring Republicans to rework or drop significant provisions from their “One Big Beautiful Bill” (OBBB), slowing progress.
In our Wednesday update, we provided information on the parliamentary review process – AKA “Byrd bath” – and major sticking points between House and Senate Republicans. Now, it seems a new sticking point has emerged, with a growing number of Republicans starting to call on the Senate to overrule or ignore the Senate parliamentarian.
These calls were exacerbated by significant rulings yesterday related to the biggest pay-for included in the bill: Medicaid cuts. The parliamentarian ruled that key cuts to Medicaid, including limits on provider taxes expected to bring in over $100 billion in savings, violate the Byrd rule – adding to the list of over 50 provisions that received such a ruling.
In the aftermath of this decision, Republicans from both chambers called on the Senate to ignore or overrule the parliamentarian, something that is not unprecedented but has been taken off the table by Senate Majority Leader John Thune (R-SD). These calls – coming from Senators Tommy Tuberville (R-AL) and Roger Marshall (R-KS) as well as dozens of House conservatives – are focused on the fact that the parliamentarian is an unelected “staffer,” an ironic viewpoint given the parliamentarian’s role as a nonpartisan advisor on Senate rules. Republicans are frustrated with the delays and the changes resulting from the bill’s Byrd bath, though Senate Parliamentarian Elizabeth MacDonough has acted as an unbiased referee on reconciliation proposals since 2012 and is widely considered impartial. Some Republican Senators, like Susan Collins (R-ME) and Thom Tillis (R-NC), have reiterated this point in her defense.
For now, it appears the Senate will keep trying to tweak provisions so as to comply with the Byrd rule. It was originally scheduled to start debate on the OBBB today, but the final text won’t even be released until provisions can be amended and get the approval of the Senate parliamentarian. Additionally, some rulings, like whether or not the Senate can use its fantasy “current policy baseline” to wipe out the cost of $3.6 trillion in Tax Cuts and Jobs Act (TCJA) extensions, have not yet been released. Even if the Senate can get past this process and put together a complete bill in the coming days, major sticking points, like the cap on State and Local Tax (SALT) deductions, remain unresolved and could threaten passage on the Senate and House floors. Senate Majority Leader Thune aims to begin consideration of the bill tomorrow, with a final vote on Sunday. As for the House, it would come back some time early next week in the case that the Senate is successful, though both timelines remain fluid.
Technically, Republicans do not have to move the bill next week at all. The real deadline is August recess, as the OBBB includes an increase in the debt limit that needs to be approved to avoid a disastrous default on the federal government’s obligations (Treasury Secretary Scott Bessent projects that the date of default, AKA the “X-Date,” will fall sometime in August when Congress is scheduled to be out on recess). But delays in passing President Trump’s legislative agenda risk multiplying the public’s growing opposition against the bill, and the president seems determined to sign the OBBB on July 4. Whether or not this will be possible given the tight timeline, parliamentary delays, and GOP opposition to specific provisions remains to be seen.
Other Developments
Democratic Socialist Mamdani Wins NYC Mayoral Primary
Zohran Mamdani, a thirty-three-year-old Muslim and democratic socialist, sailed to a surprise victory in the New York City Democratic mayoral primary, with a predicted win during the first round, after earning 43.5 percent of the vote compared to former New York Governor Andrew Cuomo’s 36.4 percent. The State Assemblyman’s win came despite polling which had him at just 4.4 percent in January and 18.2 percent at the beginning of June. Voters and Democrats across the country took notice of Mamdani’s authenticity, focus on affordability, and bold agenda.
Mamdani messaged on the rising prices of everything from rent to transportation to groceries, and has proposed the establishment of experimental city-owned grocery stores. He has also supported funding antimonopoly challenges against major utility companies geared at reducing utility bills.
Mamdani’s policies also include:
- Free city buses
- Public childcare
- City-owned grocery stores
- Rent freeze on rent-stabilized units
- Building affordable social housing units
While Mamdani received endorsements from Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez, many are critical of his limited experience and bold progressive ideas. The New York Times editorial board wrote that he did not belong on the ballot, and Michael Powell of The Atlantic called his campaign magical realism. Neither Senator Schumer nor House Minority Leader Jeffries has endorsed Mamdani’s general election bid.
Rank Choice Voting (RCV), which provides voters with the option to rank all candidates by preference, is becoming more common across the United States, including Alaska, Maine, and Hawaii. As more voters vote under RCV, we are learning more about the implications of this system. Prior to this race, it was believed that RCV provides benefits to more moderate candidates, such as former House Representative Mary Peltola and current Mayor Eric Adams.
Mamdani will face off against current Mayor Eric Adams, who changed his party registration in April amid the bribery charges scandal, Independent Jim Walden, and Republican Curtis Sliwa, to become the first Muslim Mayor of New York City. Yesterday, Cuomo announced his intention to run as an Independent after losing the Democratic primary, a possibility he had previously floated. Mamdani is new to politics, having served in the New York Assembly since first being elected in 2020. One thing is clear: Mamdani represents both a generational change and a rebuke of the Party establishment.
Mamdani’s success raises the question for Democrats: should Party candidates lean into the pocketbook issues and adopt the man-on-the-street momentum of the Mamdani method? Does his win carry implications outside of the most progressive of jurisdictions like New York City?
U.S. Economy Contracts 0.5% in First Quarter
The United States economy contracted by 0.5 percent on an annualized basis in the first quarter of this year, according to the third estimate of first quarter GDP released by the Bureau of Economic Analysis (BEA) yesterday morning. The estimate shows a larger contraction than the 0.3 percent contraction estimated in April and the 0.2 percent contraction estimated in May.
The downward revision of 0.3 percentage points from the second estimate reflects consumer spending and exports for the quarter being revised downward. Imports, a subtraction in the calculation of GDP, was also revised lower, partially offsetting those downward revisions.
In the first quarter, the U.S. economy contracted for the first time since the first quarter of 2022. The decrease in GDP comes as consumers and businesses increased imported purchases ahead of anticipated tariffs. The U.S. economy grew by 2.4 percent on an annualized basis in the fourth quarter of last year and by 2.8 percent over the entirety of 2024.
May Prices Tick Up to 2.3% Ahead of Full Tariff Impact
The Federal Reserve’s preferred measure of inflation, the personal consumption expenditures (PCE) price index, rose 2.3 percent on an annualized basis in May, remaining slightly above the Federal Reserve’s two percent target, according to the May PCE report released by the Bureau of Economic Analysis (BEA) this morning. This is slightly up from the 2.2 percent annualized increase in prices in April and on par with the 2.3 percent annualized increase in March. The new inflation data comes as the Trump administration’s elevated tariffs are expected to push prices in the coming months.
Core PCE – which strips out food and energy prices – rose by 2.7 percent on a year-on-year basis last month, slightly up from the 2.6 percent annualized increase in core prices in April and on par with the 2.7 percent annualized increase in March.
On a monthly basis, headline PCE rose by 0.1 percent last month after rising by 0.2 percent on a monthly basis in April. Shelter prices rose by 0.3 percent on a monthly basis, while food prices rose by 0.2 percent on a monthly basis in May. These price increases were partially offset by a 1.0 percent decrease in energy prices on a monthly basis in May. Core PCE also rose by 0.2 percent on a monthly basis in May, after rising by 0.1 percent on a monthly basis in April.
The new data shows that inflation is approaching the Federal Reserve’s longstanding target of two percent just as the Trump administration’s sweeping tariffs begin settling into the economy, threatening to upend years of progress. With inflation expected to rise in the coming months, the new inflation data is unlikely to move the Fed’s rate-setting committee, the Federal Open Market Committee (FOMC), towards cutting interest rates at its next meeting in July.
Social Security, Medicare to Reach Insolvency in 8 Years
The Social Security and Medicare Trust Funds are on track to reach insolvency in just eight years, according to new projections included in the 2025 Trustees reports released last Wednesday. Projections for Social Security and Medicare insolvency were accelerated by one year and three years, respectively, primarily due to legislation passed in January that increases Social Security benefits for some Americans (Social Security Fairness Act) and rising health expenditures.
While insolvency is sometimes equated with bankruptcy, it does not mean that the programs will shutter. Instead, benefits will be reduced to match program inlays with outlays. The Social Security and Medicare Trust Funds have a PAYGO structure, meaning that current workers pay for the benefits of current recipients. With the large number of baby boomers currently retiring and claiming their Social Security and Medicare, concerns about the trust funds have proliferated over recent years, though the appetite for policy reform hasn’t kept pace. Below, we break out some of the main findings of the reports.
Social Security
Social Security is primarily comprised of the Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds. OASI pays benefits to retirees, funding what most people think of as Social Security. DI pays benefits to individuals who are unable to work due to a disability. The trust funds’ combined measure, OASDI, gives a better sense of the program’s fiscal condition as a whole. But funds would not be automatically transferred between the two in the case that one reaches insolvency and the other does not.
The 2025 Trustees report projects that the OASI Trust Fund will reach insolvency in 2033 – the same year as projected in last year’s report, but accelerated by three quarters. At this point, the OASI Trust Fund would only be able to pay out 87 percent of scheduled benefits (a 23 percent benefit cut). The DI Trust Fund is not expected to reach insolvency within the 75-year actuarial period. As for the combined measure, OASDI, projections for insolvency were accelerated by one year, from 2034 to 2033. At this point, benefits would be reduced by 19 percent, with the trust funds only able to cover 81 percent of scheduled benefits.
According to the Social Security Trustees, these revisions were primarily due to:
- The passage of the Social Security Fairness Act. This legislation eliminated two provisions that reduced benefits for some public-sector employees with pensions separate from Social Security (Windfall Elimination Provision and Government Pension Offset). CBO estimated the legislation’s cost at just under $200 billion over 10 years, which would come from the Social Security Trust Funds and not general revenues.
- A lower projected ratio between labor compensation and GDP. This could lead to less payroll tax revenue for the trust funds.
- A downward revision in expectations for fertility rates. This could lead to fewer workers paying into the trust funds over the longer term.
Medicare
Medicare Part A, which primarily covers inpatient care, is funded through the Hospital Insurance (HI) Trust Fund. In this year’s Trustees report, projections for insolvency were accelerated by 3 years, from 2036 to 2033. At this point, benefits would need to be reduced by 11 percent to match program outlays with inlays.
The acceleration of the projected HI depletion date was primarily due to rising health care expenditures, which were higher in 2024 than previously expected. Additionally, the Trustees project higher near-term growth in inpatient and hospice services than previously expected. The HI Trust Fund is much smaller than the OASDI Trust Fund, making it more sensitive to changes in expectations and driving the 3-year acceleration in the projected insolvency date.
Look Forward
Despite the accelerated dates, Congress is not expected to act to shore up the trust funds until insolvency gets closer. In 1983, Social Security was facing an imminent threat of insolvency, and Congress was told it needed to act before March or April to prevent benefit cuts. In congressional fashion, the fix was not passed until late April. This trend has not faltered in recent years, but has become more defined, with Congress reverting to stop-gap funding bills and retroactive policy fixes more frequently. Even now, Congress has yet to act on raising the debt limit, with the disastrous threat of default less than two months away. With the fiscal health of entitlement trust funds deteriorating from past projections seemingly every year, Congress may have less time than it thinks to come up with a bipartisan solution that (hopefully) protects previously promised benefits while increasing trust fund revenue.
Hearings
Senate Appropriators Query OMB’s Vought on Rescissions
The Senate Appropriations Committee convened on Wednesday for a hearing to discuss President Trump’s proposal to rescind $9.4 billion in previously appropriated funds under the Impoundment Control Act.
The proposed rescissions package would rescind $1.1 billion previously allocated for the Corporation for Public Broadcasting, which provides funding to NPR and PBS, and $8.3 billion for the United States Agency for International Development (USAID) and foreign assistance.
Office of Management and Budget Director Russell Vought faced pushback from senators on both sides of the aisle. Senator Patty Murray (D-WA) noted, the President’s request would rescind funding, “provided with 60 votes with just a simple majority. And if that becomes the new normal for how this body operates, that is going to make appropriations bills extremely hard to negotiate.”
Senate Banking on Digital Asset Market Structure Bill
On Tuesday, the Senate Banking Committee held a hearing on its roadmap for digital asset market structure legislation. The hearing was primarily an opportunity for SBC Chair Tim Scott (R-SC) and Senator Cynthia Lummis (R-WY) to outline the principles they would like the Senate’s eventual market structure bill to adhere to. No mention was made of whether or not those present were on board with the potential adjustments facing the GENIUS Act in the House, most notably HFSC Chair French Hill’s (R-AR) plans to essentially bundle the CLARITY Act into the GENIUS Act to try to pass one, massive piece of crypto legislation instead of two major pieces of legislation. Some of the highlights from the discussion include:
- a definition for when crypto is a commodity versus a security.
- clear jurisdiction between regulators when it comes to digital assets.
- a light-touch regulatory regime for the SEC on digital currencies.
No draft legislation was presented, and only six committee members total attended the hearing: five Republicans and Senator Angela Alsobrooks, a notable pro-crypto Democrat. Since all those attending were already pro-crypto, there was little drama or disagreement, a sharp departure from recent debates over the GENIUS Act.
Powell Testifies Before Congress
This week, Federal Reserve Chair Jerome Powell appeared before the Senate Committee on Banking, Housing, and Urban Affairs (SBC) and the House Committee on Financial Services (HFSC) to deliver his semi-annual monetary policy report to Congress.
Democrats focused on the impact of tariffs on consumer prices, with Powell noting that tariffs are expected to result in higher inflation figures in June or July. Powell said that small businesses that may import a single good may be significantly affected if that good faces tariffs, while larger companies may have more resources and a more diverse product line. When pressed by Representative Sam Liccardo (D-CA), Powell also noted that the Trump administration’s tariffs could also lead to a rise in prices of non-tariffed necessities as companies often say that if they are unable to cover the losses on a good that has been tariffed, they will find other ways to do so.
Rep. Liccardo (D-CA) also raised questions about the reliability of economic data released by the Bureau of Labor Statistics (BLS), which the Fed relies on to make its monetary policy decisions. Powell noted that there has clearly been very mild degradation of the scope of the surveys and said, “I don’t like to see the kind of stories I’m reading and the idea being that that data is going to become more volatile and less reliable.” The comments come as Republicans’ reconciliation package seeks to cut $56 million from the BLS’s budget.
Look Ahead
Thursday, July 3
- July jobs report