Early Thoughts on the 118th Congress

High risk, high reward negotiations coming up for defense appropriations

After two relatively placid years of one-party control, the 2022 elections seem almost certain to return the United States to its natural condition of divided government. Given recent statements by senior Republicans regarding the debt ceiling and domestic spending, this shift will have clear implications for aerospace and defense budgets. There seems to be a strong belief that a Republican majority will increase defense spending; this belief is likely accurate, but it will be held in balance with broader attempts to cut total spending/reduce the deficit. As was seen in 2011, should deficit hawks hold the balance of power defense spending may be at risk of being sacrificed in broader fights over fiscal austerity. This piece will try to game out some of the potential issues that will arise in 2023 and 2024 assuming that Republicans control at least the House of Representatives. It’s worth noting that the election results will also have implications for the status of FY2023 appropriations, a subject that I will touch on as well.

Before diving into 2023, it’s worth laying out the case for why divided control seems assured. According to fivethirtyeight.com’s “Classic” election forecast, there is an 80% chance of Republicans winning one chamber and a 40% chance. Conversely, it gives the odds of Democrats holding both chambers as only 19%. And this is fairly optimistic as political forecasts go. Real Clear Politics (RCP) predicts a 53-seat GOP majority in the Senate and at least 228 GOP House seats with an additional 33 seats as toss-ups. Historically the trend is for the party in power to suffer significant losses – since 1934, the party of the White House has averaged losses of 28 House seats and 4 Senate seats. The few exceptions to this trend have normally been periods of excellent financial performance or significant national security concerns (the 2003 mid-terms, taking place just two years after 9/11). So, it would be a historical anomaly for Democrats to manage to hold on to their tenuous majorities in both chambers.

Assuming that historical trends hold, much will come down to the extent of the GOP gains. A scenario where a relatively narrow GOP win gives them a slight House majority and keeps Democrats in control of the Senate will look very different from the RCP forecast which would grant Republican leadership more room to maneuver. It’s worth keeping that in mind when considering how the 118th Congress might unfold.

Before diving into 2023, there remains the possibility that a lame-duck session of Congress will resolve at least two of the immediate issues; appropriations for FY2023 and the debt ceiling. As of November 2nd, there have been mixed indications about whether this would be the case. Both Democratic and Republican leadership seem hesitant to disclose their hands prior to the election, but it is a distinct possibility that both of those potential flashpoints will be removed, giving the 118th Congress more time to settle in before taking up contentious legislation.

However, even should FY2023 appropriations and the debt ceiling be settled in the lame duck, FY2024 appropriations will be here before you know it and an additional Ukraine supplemental will almost certainly arrive sometime next year. A narrow GOP House win would make the critical 218th vote (the majority vote in a 435-seat House) someone from the far right of the caucus. This would set the stage for the most tumultuous possible year as likely Speaker Kevin McCarthy will have to find legislative options for these issues that unify his caucus. Much will depend on the composition and size of the incoming GOP class. Should there be a major influx of more Trump-oriented representatives, similar to current Rep. Marjorie Taylor Greene, this task will be much more difficult. McCarthy will need to find 218 votes to effectively negotiate with the Senate and the White House. This is slightly less challenging if Republicans hold the Senate, but will remain an issue nonetheless due to the White House’s veto and Senate Democrats’ ability to filibuster should they be in a minority.

In particular, this would mean finding a structure to appropriations bills that is palatable to members pushing for major shifts in funding without angering members concerned about the impacts of major spending cuts. The government has to be funded, meaning there is no way for these votes to be avoided absent a year-long CR. It is likely that the dynamics within the Republican caucus will push for it to adopt proposals that are unacceptable to the Biden White House, leading to the possibility of government shutdowns or prolonged CRs.

In addition, simply formulating an agreement within the House GOP caucus will be difficult. There’s an old saying that Americans are philosophical conservatives but operational liberals, which is a long-winded way of saying that they like the idea of spending cuts in the abstract but tend to oppose it in the particular. And, indeed, recent polling bears that out – support for “reducing government spending” is fairly high, but at the same time, when asked about specific issue areas, most people support more funding for education, VA benefits, highways & bridges, and more (though the linked data is from 2019 this trend is consistent across time). House Republicans will face the consequences of this when attempting to impose cuts to specific programs rather than to abstract “spending”. How Speaker McCarthy manages this will be a key question for appropriations bills in 2023 and 2024.

Ukraine aid is a very different matter. This is supplemental legislation that can be avoided or delayed fairly easily. Should Speaker McCarthy face major resistance within his caucus, it is easy to envision a scenario where supplemental bills are postponed until must-pass legislation comes forward and then rolled into an eventual negotiation. This would clearly be bad for Ukraine, but it is possible that DoD will be able to use reprogramming or executive action to move funds around to mitigate delays in passage. Regardless, it is hard to be optimistic about these supplementals moving with any degree of speed next year.

The debt ceiling is the last issue and, should it not be dealt with in the lame duck, easily the situation most fraught with difficulty. The last time an empowered conservative caucus swept into Washington to oppose a Democratic White House, the result was the Budget Control Act of 2011 and a decade of sequestration fights. It is entirely possible that a similar dynamic could play out in 2023. There are mitigating circumstances that might change this – the Biden White House may believe it can call conservatives’ bluff and moderate Democrats may be less willing to give up defense spending given higher global tensions.

Unfortunately, there are also additional dynamics at play that make this situation more volatile. John Boehner was an experienced, capable legislator with a long history of accomplishments heading into his speakership. Kevin McCarthy has a much less clear history of accomplishments; his ability to lead his conference and effectively legislate remains unknown. Similarly, in 2011 there was no GOP presidency in waiting as there is with Donald Trump preparing to run again in 2024. Both of these factors could push Congressional Republicans to take more extreme positions and push for maximum returns, leading to potentially difficult-to-foresee outcomes. A financial crisis in the United States is entirely possible, the aftermath of which would be potentially damaging to any future government spending as borrowing costs could easily spike, prompting immediate austerity.

All of this lies in the future, but defense budget watchers should be paying close attention. The outcome of the election will only be the beginning of the posturing and maneuvering within Democratic and Republican caucuses in preparation for the 118th Congress. Similarly, the 2024 presidential election will unofficially kick off early in 2023, as Republican candidates potentially begin campaigning for the Iowa and New Hampshire elections in January of 2024. 2023 promises to be a particularly challenging year and expectations around defense budget growth should be tempered by this uncertainty.