Happy new year! We hope you managed to spend some time with your families over Christmas and New Year, in spite of the (relative) craziness in DC, and we certainly hope you're enjoying the snow, which always looks beautiful on DC.

Perhaps while you were away, you couldn't get off Elon's X app, in which case you may or may not have followed the debate over the H-1B program. A debate which was fascinating in both form and content, but one which is not the topic today since H-1B reform is not on the agenda right now.

What is is reconciliation, and tax reform.

On Truth Social, the President-elect (whose election was just certified without incident by Congress), called for an ambitious reconciliation bill: "“We must Secure our Border, Unleash American Energy, and Renew the Trump Tax Cuts, which were the largest in History, but we will make it even better - NO TAX ON TIPS.”

This is an ambitious item, although some promises from the campaign—such as an expanded child tax credit, or cutting Social Security taxes for pensioners—have been quietly, if not dropped, then, certainly, deprioritized. The only item that's presented as a "must-have" is "no tax on tips."

So what the President-elect wants from Congress falls under three major buckets: border security, energy reform, and a tax reform package that includes renewal of the Trump tax cuts and no tax on tips.

There's a very big word that's not on there, however, and that is "spending." This is smart politics, but may not please traditional conservatives, particularly in the House, that the President cannot afford to lose, and who might balk at being asked to vote for a gigantic deficit expansion without at least some spending cuts. Speaker Johnson's very narrow House majority—given that unified Democratic opposition is to be expected—is a problem.

Given the tricky politics, Politico's Jordain Carney and Meredith Lee Hill report that Speaker Johnson favors the so-called "one bill" approach of putting as much as possible in one big reconciliation bill, which would pass the House in "early April".

So that's the politics, and that's the process. What about the policy? This is where things get tricky. At a time of high interest rates, deficits can't be infinite. Meanwhile, an aging American population is pushing up entitlement spending. At 3.5% of GDP, defense spending is not particularly high historically, and is probably slated to go higher given historic tensions with Russia and China. DOGE's magical painless trillion-dollar cuts to $50,000 studies about rodents have yet to materialize. Not renewing the Trump tax cuts looks like political folly. And the Trump-Vance ticket promised everybody a tax cut, from workers on tips to seniors, to parents, to corporations, to high-income residents of blue states. The only revenue-raiser that has political support is tariffs, and (putting aside the merits of the policy) it's never going to make up for the rest.

We will spend the next few months trying to track down how this square could be circled. Stay tuned.

Policy News You Need To Know

#CTC — Speaking of, Sen. Hawley is making a big opening bid in the tax reform wars, calling for the child tax credit to increase from a maximum of $2,000 to $5,000 per child. He also wants parents to be able to claim the credit for the year of the pregnancy after the child is born. Naturally, given Hawley's working-class-populist politics, the credit would be refundable against payroll taxes. It would also have work requirements.

#Immigration — This may be the best piece that has come out of the Great Christmas X Meltdown Over H-1Bs: at Compact, professor Norman Matloff explains, in depth, how the program is exploitative and seemingly designed to undercut American workers. Supporters of high-skilled immigration should be able to recognize that the H-1B program as it currently exists is deeply broken.

#Immigration — Speaking of, Apple just fired over a hundred Indian staffers who were involved in a charity scam. The way it worked was breathtakingly simple, and highlights the virtues of a high-trust society: Apple has a charity grant match program, which matches donations to charities made by employees; these employees sent money to bogus charities back home; the fake charities then returned the money to the "donors" and stole Apple's matching grants.

#Media — The Washington Post is planning to lay off "dozens" of staffers this week, Oliver Darcy at Status reports.

#Trade — So President Biden banned the US Steel acquisition. AEI's Zack Cooper explains why that was a bad decision.

#MAHA — Gavin Newsom is nothing if not a smart politician, very good at smelling which way the way is blowing, so it's always worth keeping an eye on what he's up to. And what he's up to is following RFK, Jr.'s lead, crafting an executive order cracking down on food dyes and ultra-processed foods.

#SmallBusiness — Very interesting: small business owner and NFIB member Sam Pfister writes against the Corporate Transparency Act, which he argues puts onerous requirements on small businesses. "This new mandate, which has very confusing and burdensome rules, requires small businesses with fewer than 20 employees and less than $5 million in profits to register with the federal government in a massive new government database. The reporting rules require senior officers with at least 25% ownership in the business but also individuals who have “substantial control” over decisions in the business to register. Does this include managers? Probably, but it’s grey. What isn’t grey is that every time an officer or manager comes or goes or any information changes, it’s time to fill out new paperwork. That’s $500-$1,000 in more fees to lawyers and CPA’s to quench the thirsty federal bureaucracy. More than 32 million small businesses fall under this new scheme. According to a recent estimate, fewer than 10 million have filed with the federal government. Many are unaware of its existence." As the owner of a small business in based America, your correspondent can confirm that the regulatory requirements are onerous—and even more so, in many cases, than in his home country of…France.

#Homelessness — The plague of homelessness in the US over the past 10 years, particularly in blue states, has been staggering. HUD released their homelessness report over the holidays, and it is depressing. HUD has spent more on homelessness, and the homeless population has dramatically increased. Caitlyn McKenney of the Discovery Institute's Center on Wealth and Poverty has more.