Some high-profile fights in the early weeks of the Trump administration are linked together by the question of presidential spending authority.
And it could be just a small taste of what’s to come.
At issue is whether a president can take spending laws passed by Congress as suggestions instead of edicts. The debate has centered on multiple topics, from a short-lived plan for a federal spending “freeze” to Elon Musk’s effort to reorganize entire agencies.
The latest front is the Senate floor, where Democrats launched an effort Wednesday afternoon to hold the upper chamber “all night” over an outspoken nominee on the issue.
“I see this as simply the start of what’s going to be a long, drawn-out effort,” said William Hoagland of the Bipartisan Policy Center in a recent interview about early developments.
The tactic at issue goes by the technical name of “impoundment,” a reference to what happens when congressionally appropriated money simply isn’t spent by the president’s executive branch.
It’s a concept that Trump made part of his 2024 campaign — and Musk embraced during the transition — and is likely to end up before the Supreme Court.
The impoundment issue is also part of the back and forth over cutting foreign aid as well as plans for scaling back green energy projects. It’s even an element of the opposition to access that Musk’s team has gained to a sensitive $5 trillion payments system at the US Treasury Department.
“There is real danger,” Senate Minority Leader Chuck Schumer said Tuesday, that Musk’s team “will not only have access to Americans’ private information but they will use that to cut programs left and right.”
Democrats are planning to hold the Senate floor for 30 hours starting on Wednesday afternoon to protest the nomination of Russell Vought — who has called a law limiting impoundment unconstitutional — to lead the Office of Management and Budget.
Vought, after the Democratic hold runs out on Thursday, is expected to be easily confirmed. The fight over the White House’s early spending “freeze” likewise faded quickly.
But the impoundment debate could become more akin to a long-term crisis if — or perhaps when — Trump’s team tries to stretch its powers further and unilaterally and permanently cancel money set aside by Congress.
That would be a crossing of a significant legal rubicon, which many on the left contend is already happening, and one that could overshadow even the high drama of what we’ve seen so far.
A coming fight around a Watergate-era law
The core of the issue is a law called the Impoundment Control Act of 1974.
Following abuses by then-President Richard Nixon, the law was passed to enact a process that the president must follow if he or she wishes to diverge from congressionally mandated funding.
In short: It mandated that a White House needs to go back to ask permission for such a move through what is known as a rescission resolution. The law was then further solidified by a Supreme Court ruling in 1975.
In a 2023 campaign video, then-candidate Trump called the law a “blatant violation of the separation of powers,” adding, “With impoundment, we can simply choke off the money.”
Trump also clashed with the law in his first term — his delay of congressionally mandated funds to Ukraine was part of the basis of his first impeachment — but he also sent rescission resolutions in other instances.
He has staked out a more defiant position this time.
Hoagland has held discussions with incoming Trump administration officials — including Vought — and said the Trump team’s public and private positions are aligned and crystal clear.
“It was clear from them … that they felt that the Impoundment Control Act was unconstitutional,” Hoagland said of his conversations.
The moment Hoagland is watching for is when Trump and Vought turn to challenge the law directly.
“My sense here is that if they do not submit that rescission resolution, then that’s when the action will take place and get it into the courts,” he says.
‘It’s not a power grab’
Many in Washington say the constitutional crisis over impoundment is already here as Musk and his DOGE compatriots brag that they are breaking government contracts and ending what the billionaire calls “illegal payments.”
Others see some of Trump’s day-one actions, specifically an early executive order on energy that held back spending on the Biden-era green energy priorities, as the first salvo on impoundment.
Democrats have tried to seize on spending issues as ones with particular political salience. They’ve held protests outside of government agencies and often return to a moment when Trump’s spending freeze led to a short-term shutdown of the Medicaid portal.
It was an opening — one that frustrated some Republican allies of Trump and galvanized Democratic opposition — that saw the impoundment debate moving from legal circles to everyday lives.
And Republican lawmakers are being challenged on the issue, with House Speaker Mike Johnson asked Wednesday whether Republican lawmakers are ceding their “power of the purse” to let Trump act unilaterally.
On the apparent Trump plan to end the Department of Education, Johnson rejected the premise that Congress was being undercut. He wouldn’t say if a new law was needed to codify such a move and called what is happening now a “pause.”
“Right now, I think they’re acting within the scope of their authority,” he said of the Trump administration. “It’s not a power grab.”
Others plainly disagree. Bobby Kogan, a budget expert at the left-leaning Center for American Progress, said the larger dynamic here is that “Congress doesn’t have the votes to do what Trump proposed” in terms of some of his more intense cutback ideas.
He cited an internal memo from House Budget chief Jodey Arrington that floated deep cuts but saw lawmakers immediately distance themselves from the more controversial ideas.
“They clearly want to do this,” said Kogan of Republican congressional leaders, “and the benefit for them is if Trump can do it unilaterally, then they don’t have to attach their name to it.”
That internal document, which outlined various options for an upcoming reconciliation and was obtained separately and reviewed by Yahoo Finance, shows Arrington proposing an array of reforms, including ones to Medicaid that would cut up to $2.8 trillion from the program in the decade ahead.
But as the political fights continue to play out, there’s one final outcome largely agreed upon.
The Impoundment Control Act “is going to go before the Supreme Court,” Kogan said. “100% for sure that’s happening.”
Ben Werschkul is Washington correspondent for Yahoo Finance.
Every Friday, Yahoo Finance’s Rick Newman and Ben Werschkul bring you a unique look at how U.S. policy and government affects your bottom line on Capitol Gains. Watch or listen to Capitol Gains on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.
Trump’s 2.0 trade war is already ‘fundamentally different’ from 1.0
The hectic kick off to Donald Trump’s tariffs in recent days is making one thing abundantly clear: This is very different from Trump 1.0.On an array of issues — from the speed of the duties and the wider array of consumer staples caught in the middle to Trump’s plan to use tariffs for “getting everything else you want” — the president is offering a new and unpredictable approach.After announcing historic duties on America’s top three trading partners over the weekend, Trump then shocked markets again on Monday with a quick pivot on two of them.As of Tuesday morning, 10% duties on China are in place, and the world’s second-largest economy has already hit back. The 25% duties on Canada and Mexico are on hold for a month as talks continue.Meanwhile, the rest of the world is also approaching the issue differently. In just one example, China threatened Tuesday to use probes into Google (GOOG, GOOGL) and Nvidia (NVDA) as leverage in the coming face-off.At a Politico event on Tuesday morning, Trump’s senior counselor for trade and manufacturing Peter Navarro said the president’s call with Chinese leader Xi Jinping will take place today and that a tariff pause will be on the table.The unpredictable mix is clearly flummoxing Wall Street and the rest of corporate America.”It is fundamentally different,” former US trade representative general counsel Greta Peisch said in an interview, noting that Trump is now “breaking new ground in what is a trade authority, what are they used for, and how expensive the transactions will be.”
- There are few levers (outside the market) with the power to push back on Trump’s tariff planshttps://s.yimg.com/rx/ev/builds/1.10.12/pframe.htmlBen Werschkul · Washington CorrespondentUpdated Mon, February 3, 2025 at 5:17 PM GMT+1 6 min read1.2kIn This Article:^DJI+0.71%For all the norm-shattering of Donald Trump’s Saturday move to levy tariffs on America’s top three trading partners, few signs have emerged in the hours since that any force outside of the president himself will be able to quickly reverse his decision if he is determined to stay the course.While rhetorical opposition is already evident from Wall Street to Capitol Hill, any challenges in political or legal arenas are expected to be protracted and an uphill climb after decades of tariff authority migrating to the executive branch.Canada’s ambassador to the US acknowledged as much in a television appearance Sunday, saying that the tariff plan “is really something that is in the president’s hands.”The standoff then led to a rapid series of back-and-forths Sunday and into Monday as both Canada and Mexico tried to avert the duties scheduled to go into effect at 12:01 a.m. ET Tuesday.One breakthrough came Monday with Trump and Mexican President Claudia Sheinbaum announcing a breakthrough — the US would be delaying a new wave of 25% duties on America’s southern neighbor by a month.”It was a very friendly conversation,” Trump wrote on Truth Social, confirming what the Mexican president had said about the delay moments earlier.But the fate of promised 25% duties against Canada and 10% duties on China remain uncertain Monday morning.In another post Monday, Trump said he spoke with Canadian Prime Minister Justin Trudeau and would talk again at 3 p.m. ET. But he offered a much more aggressive tone and also raised new issues such as Canada’s limits on the US banking system.
- New Trump tariffs on Mexico, Canada and China set to start Tuesdayhttps://s.yimg.com/rx/ev/builds/1.10.12/pframe.htmlBen Werschkul · Washington CorrespondentUpdated Sun, February 2, 2025 at 2:05 PM GMT+1 5 min read12.3kPresident Donald Trump moved forward Saturday with his plans for tariffs on Canada, Mexico, and China, ending a guessing game about how aggressively he would move to penalize America’s three largest trading partners.The tariffs — as Trump has promised since after his election win — will be 25% duties on Canada and Mexico and 10% on China over issues of fentanyl and illegal migration.The duties on all three countries will be fully in force by Tuesday, Feb. 4, according to the orders signed by Trump Saturday afternoon in Florida.Read more: The latest news and updates as Trump’s tariffs are set to take effectBut tariffs on crucial energy imports from Canada will be lower with 10% duties on those products. The carveout was an acknowledgment of US and Canadian energy interdependence.Trump said the drug and migration issues constituted a national emergency and moved forward on the duties using authority in the 1977 International Emergency Economic Powers Act (IEEPA).”We need to protect Americans, and it is my duty as President to ensure the safety of all,” Trump added in a Truth Social post. He then posted a video clip reiterating his view that tariff is his favorite word.
EY chief economist Greg Daco has taken a macroeconomic look and estimated that US GDP would contract by 1.5% in 2025 and 2.1% in 2026 if the tariffs stay in place.
On the other side of the ledger, the nonpartisan Committee for a Responsible Federal Budget estimates that the duties are likely to raise up to $1.5 trillion for the US Treasury over the coming decade if they are made permanent.
The White House has meanwhile tried to downplay possible economic effects while disputing any link between inflation and price increases.
White House Press Secretary Karoline Leavitt on Friday avoided a question about whether the administration would reverse tariffs if they do increase prices accusing the media of looking at the issue “in a microscope rather than looking at the whole of government economic approach that this president is taking.”
Other voices on Saturday offered praise for the move.
The top GOP tax official on Capitol Hill — House Ways and Means Committee Chairman Jason Smith — praised the move, saying Trump “is delivering on his promise to take bold action to protect our communities, secure our borders, and bring in additional revenues to the federal government.”
But other Trump allies were critical.
“Tariffs are simply taxes,” wrote Sen. Rand Paul, who is a vocal Trump advocate on other fronts. “Taxing trade will mean less trade and higher prices.”
The Canadian Chamber of Commerce added its own blistering statement that called Trump’s move “profoundly disturbing” and added that it “will have immediate and direct consequences on Canadian and American livelihoods.”
Technical details of the duties
Trump imposed the new duties using a presidential authority granted in a 1977 law that allows them to be in place quickly.
The use of the International Emergency Economic Powers Act does give Trump considerable latitude to move quickly but could also open him to legal challenges.
The law also only asks for consultation with Congress “in every possible instance.”
Overall, Saturday’s move is seen as a likely restarting of trade wars that marked Trump 1.0 but at a higher volume with the president now promising to go even further in the weeks and months ahead.
Trump’s actions between 2017 and 2020 were often wide-ranging — covering well over half of Chinese imports, for example — but often limited and focused on specific sectors like steel and aluminum.
This time around, Trump has acted first on large umbrella tariffs which the Tax Foundation estimates will hit about $1.4 trillion worth of imports, compared to $380 billion during Trump’s first term.
And additional sector specific tariffs could be in the offing soon and Trump himself listed many goods Friday that could be in store for additional duties in the months ahead.
It was a sizable list of industries from semiconductors to steels to copper to pharmaceuticals. He also outlined a plan to “absolutely” impose tariffs on the European Union in the future.
