Republicans are going to have to drop the 'fiscal conservative' act pretty soon
Instead of delivering something "revenue neutral" that won't add to the deficit - the kind of fiscally-responsible budget the GOP has been railing about for years - we're going to get a deficit exploder.
How do we know? Because hard-line Republicans are already throwing out the idea that we need to have a totally balanced budget.
"So, tax reform and lowering taxes, you know, will create and generate more income," Mark Meadows, the head of the House Freedom Caucus, said on Sunday. "And so we're looking at those, where the fine balance is. But does it have to be fully offset? My personal response is 'no.'"
You heard that right. The fiscally-responsible hard liner just gave the go-ahead for a spending spree.
Now, from the sounds of it, this is all going to happen for the same reason that the Republican attempt to replace Obamacare failed - because it's hard to pass legislation. At least, that's what Budget Director Mick Mulvaney said on Meet the Press on Sunday.
"What happened was that Washington won. Washington is a lot more broken than Trump thought it was," he said.
He continued: "We haven't been able to change Washington in the first 65 days. And I think if there's anything that's disappointing and sort of an educational process to the Trump administration was that this place was a lot more rotten than we thought that it was."
And of course, we know that without the $1 trillion in entitlement cuts that Obamacare's repeal would've provided, the whole revenue neutral thing was going to be harder to achieve anyway. Perhaps that's what Meadows was acknowledging, but - either way - it's too late to get that budget cut back.
So here we are, exactly where we've been before.
David Stockman, President Ronald Reagan's budget director, complained that he was never able to cut as much from the budget as he needed to to make it balanced because of Washington's horse trading. That was during a period when Republicans and Democrats actually talked to each other. Reagan's administration ended up exploding the deficit as well as the size of the federal government.
Ultimately Stockman came to believe that there were "no real conservatives" when it came to fiscal responsibility in Washington, and if Meadows was being honest on Sunday, Stockman's words still ring true.
What that leaves us with are a bunch of Republicans who really like tax cuts, and are just so-so on fiscal conservatism.
The fact that Republicans didn't kill Obamacare means that more controversial elements of Trump's tax plan, like border adjustment tax, are a must if the budget is going to remain revenue neutral. And the budget has to be revenue neutral if it's going to pass through a filibuster-proof process called reconciliation.
That's going to be hard. It's going to involve horse-trading - maybe even with Democrats. Mulvaney may have to grab his smelling salts.
And so will the rest of us. The hope in Washington was that tax reform would pass by August, but Senate Majority Leader Mitch McConnell is already starting to express doubts about that.
So are some folks on Wall Street. Here's what Societe Generale's analysts wrote about it on Sunday:
"The inability for different Republican factions to agree on legislation that can also pass the Senate does not bode well for fast agreement on tax reform. If Congress fails to approve tax reform ahead of August, confidence is likely to slip. Congress could still pass a bill by the end of the calendar year, but even that could slip. The Border Adjustment Tax, the most controversial piece of current tax reform discussions, is less likely to pass."
Without border adjustment, Societe Generale believes, "Either other tax cuts will not be so deep, or other revenue measures need to be raised. The full expensing of capital investments may not be truly full, or the cut in the corporate marginal tax rate from 35% may not go as low as 20%."
In other words, we're going to get a watered down tax bill that looks nothing special - at least, if you don't want to blow a hole in the budget.
Or there's another option that the Freedom Caucus has just put on the table - scrap the whole "fiscal responsibility" thing and just try to lower taxes (budget be damned) as much as possible, even if it doesn't happen this year.
YOLO.*
*YOLO means "you only live once" and is being used here ironically.