Economist: Republicans May Turn to Reconciliation
Published: Friday, January 17, 2025
According to one farm policy expert, new tax cuts proposed by the incoming administration should help farmers tremendously. But new tariffs and mass deportations of immigrants, if implemented, will increase inflation and drain an already tight labor pool. In the meantime, all eyes will be on the farm bill debate and what happens with the Nutrition Title.
Matt Erickson, former chief economist for the Senate Ag Committee under former U.S. Sen. Pat Roberts (R-Kan.), shared his views on the new Congress and the new administration during the annual Purdue Top Farmer Crop Workshop last Friday in West Lafayette.
A Purdue University alumnus, Erickson currently is an economic advisor with Farm Credit Services of America. He also has worked for the American Farm Bureau Federation.
Erickson said the 2024 election revealed the public's frustration with high inflation. While the infla-tion rate currently sits near 2%, he said the "accumulation" of year-over-year inflation with respect to food prices is well over 20%. Similarly, housing costs have increased over 25%.
"I think what the election did teach us, and what we're going to be experiencing in 2025, is this intersection between the macroeconomy as well as policy," he said.
With Republicans controlling both houses of Congress and the presidency, Erickson said the first hundred days will be "jam-packed" with confirmation hearings, new legislation and new policy. He said there is consensus to pass a new farm bill in that early window. However, he added there is little margin for GOP defections.
Working with a slim five-seat majority, House Speaker Mike Johnson (R-La.) "has the toughest job in Washington" as he tries to unify Republicans, Erickson said. There are 220 Republicans and 215 Democrats in the House, but three GOP seats remain vacant after the resignation of Florida Rep. Matt Gaetz (R) and the nominations of Elise Stefanik (R-N.Y.) for UN ambassador and Mike Waltz (R-Fla.) for national security adviser.
If Stefanik and Waltz are confirmed, special elections will be held this spring to fill their seats. But in the coming months, Johnson will have to operate with no margin.
In the Senate, Republicans hold a 53-47 majority. However, 60 votes are needed to pass major legislation. There is one exception—reconciliation, a special process in which bills need just a simple majority, 51 votes, to pass.
"One of the reasons you do reconciliation is to bypass that 60-vote filibuster in the Senate," Erickson said.
He added that Congress has used the reconciliation process 23 times since 1980.
Back in 2018, Erickson's job was to muster 60 votes to pass the farm bill. One of the lessons he learned was that it's very difficult to cut programs, like SNAP (Supplemental Nutritional Assistance Program).
"Everyone has a different priority in terms of how these government programs, whether mandatory or discretionary, impact the constituency that they have to go back to," he said, referring to U.S. senators.
Prior to leaving Washington before Christmas, a politically divided Congress extended the 2018 Farm Bill for another year, passed $100 billion in disaster assistance and provided $10 billion in aid to farmers.
One thing not included in the year-end package was an extension on the debt ceiling. The current U.S. debt stands at $36.2 trillion, or $170,000 per taxpayer.
Now that they are in control of Congress, Republicans hope to pass legislation raising the debt ceiling by $1.5 trillion coupled with $2.5 trillion in spending cuts.
"Where do we find those cuts?" Erickson asked. "That's currently being negotiated right now."
Other "pillars" of the GOP plan include funding border wall construction and immigration enforcement, increasing energy production, extending the 2017 tax cuts and reducing the size and scope of federal agencies.
"It is absolutely crucial for Republicans to get this right," he said.
GOP leaders are debating whether they will need one reconciliation bill or two. President-elect Trump has said he wants "one big, beautiful bill," while Johnson and Sen. Majority Leader John Thune (R-S.D.) both want two bills.
"Time is of the essence when you get a reconciliation bill done, especially when you have thin margins like you do on the House side," Erickson said.
Based on the first Trump administration, it is likely that tariffs will be utilized as a strategy during the second administration. Erickson said there are a lot of unknowns; but if President-elect Trump moves forward with tariffs, other countries are likely to respond with counter-tariffs. Those tariffs could result in a loss of market access for U.S. farmers.
"A whole range of unknowns here, but it's hard for us to say that these are not inflationary," he said.
During his campaign, Trump called for mass deportations to occur in his first 100 days in office.
"This is the one I'm most concerned about," Erickson said, adding that a labor shortage could increase costs for farmers.
Following the COVID pandemic, there were roughly two jobs available for every worker. Although the labor market has tightened, Erickson said there aren't enough native-born workers to fill available jobs.
"Hypothetically, let's say we have mass deportations," he said. "But if you continue to have a strong labor market, who's going to fill those jobs? There's probably not a lot of native-born workforce folks who want to work at a processing plant."
The 2017 tax cuts are set to expire at the end of 2025. Republican leaders would like to extend those cuts through the reconciliation process. Erickson said the tax cuts represent the biggest "win" for farmers and consumers.
"This is a massive piece of legislation, folks," he said. "We're talking about a $5.2 trillion net bill, about $8.1 trillion in (tax cuts) and about $2.9 trillion in revenue raises. This is a huge impact to the deficit."
Regarding the confirmation hearings, the Senate Ag Committee will hear testimony from Brooke Rollins, President Trump's nominee for USDA secretary. However, Erickson said "most significant for agriculture, in my opinion, is a guy by the name of RFK Jr. There's a lot unknown. He's kind of switched his stance a little bit with regard to some of his 'Make America Healthy' movement."
If Robert Kennedy, or RFK Jr., is approved as Health and Human Services secretary, he could restrict pesticide use, define "artificial" foods and change the U.S. Dietary Guidelines, according to Erickson.
Regarding the farm bill, Republicans want money for farm programs but will look to reduce spending on food stamps, or SNAP. The Republican-led House passed a farm bill last May that reflects those priorities, but it's uncertain if that bill will be used as a "place marker" for this year's debate.
Erickson said Democrats will oppose cuts to the Nutrition Title, but he predicts that Congress will work quickly to pass a new five-year farm bill.
Ad hoc payments are also expected to be considered. Erickson said farmers are entering a post-boom cycle in which profit margins will be thin. He added that Congress will have to wrestle with competing priorities: the desire to help farmers stay afloat versus the desire to cut spending.
Erickson emphasized that Speaker Johnson will have a difficult job unifying members of his party around either option.
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