Policy Week in Review - Congressional Activity Likely to Slow, Prompting Shutdown Fears, While Iran Conflict Restarts
In This Edition:
The ceasefire with Iran came to an end this week, with no clear path towards a permanent agreement.
House Republicans will take the first steps toward trying to pass Reconciliation 3.0 next week, including hundreds of billions in defense spending and voter ID laws.
Congress is stuck at a standstill because of in-fighting over the SAVE America Act.
The chances of a federal government shutdown in September are rising.
At the NATO Summit earlier this week, President Trump touted foreign investment in the U.S. defense industry while sharply criticizing Spain.
Obamacare premiums could increase again in 2027.
President Trump and Ukrainian President Zelensky agree to joint weapons development.
President Ends Ceasefire After Iranian Attacks on Commercial Ships
The U.S. launched retaliatory strikes on Iran this week after the Islamic Revolutionary Guard Corps (IRGC) struck three commercial tankers attempting to traverse the Strait of Hormuz. The initial round of strikes hit 80 military targets, including more than 60 IRGC small boats. A second round of strikes hit “air defense systems, coastal surveillance assets, missile and drone storage sites, naval capabilities, and military logistics infrastructure along Iran’s coastline.”
According to the U.S. Central Command (CENTCOM), the strikes are intended “to further degrade [Iran’s] ability to threaten freedom of navigation in the Strait of Hormuz. The United States is holding Iran accountable for recent unjustified aggression against commercial shipping and civilian crews freely navigating a vital international waterway.” The Treasury Department has also revoked a license that allowed Iran to sell its oil around the world.
Following Iran’s attacks, President Trump said of the ceasefire, “I think it’s over. I don’t want to deal with them anymore. … As far as I’m concerned, it’s over.” Iran has since escalated with fresh attacks on Bahrain, Qatar, and Kuwait, three Gulf states that each host U.S. military bases. The increased tensions have thrown the status of negotiations between the U.S. and Iran into doubt, with the President expressing doubt about the efficacy of talks. “They can talk, but I think they’re wasting their time. … I don’t want to waste my time with them. Now, I’ll let our wonderful negotiators keep talking if they want, but I don’t see it.”
Although oil prices have been easing since the announcement of the Memorandum of Understanding, gas prices have recently jumped in response to the latest attacks.
The House Will Try to Move Reconciliation 3.0 and the SAVE America Act
Earlier this week, President Trump called on Congress to draft a third reconciliation bill, including $350 billion in funds for the Department of Defense and the SAVE America Act, their number one priority. Specifically, he called on the House Budget Committee to move a budget resolution (the first step in the process) when they return to Washington, D.C. next week. In addition to voter ID requirements and defense spending, the bill is expected to include provisions addressing fraud and waste in government programs.
House Republicans plan to take the lead on Reconciliation 3.0, narrowing down the list of issues and passing the budget resolution through the House before the end of July. Speaker Mike Johnson (R-LA) intends to include the SAVE America Act in the House reconciliation package, although it remains to be seen if the final House version would make it through the Senate’s more stringent reconciliation requirements. Republican leaders have also floated the idea of state grants incentivizing the adoption of policies in the SAVE America Act such as providing funding to states that implement REAL ID-style voter verification requirements, as a potential workaround to those reconciliation rule constraints.
Pressure from the President and some House Republicans to pass the SAVE America Act brought the House floor to a halt late last week, with two groups of lawmakers, one led by Representative Anna Paulina Luna (R-FL), and one led by Representative Chip Roy (R-TX), taking down key procedural votes that would have allowed the House to vote on FY 2027 appropriations bills and the National Defense Authorization Act (NDAA). The groups called for 1) the SAVE America Act to be added to the NDAA (which would almost certainly fail in the Senate), and 2) a missed promise by Speaker Johnson to bring a border security bill to a vote.
As we’ve noted, the path forward for Reconciliation 3.0 is fraught with issues that could derail the legislation. Fiscal hawks in the House want spending to be paid for, moderates oppose proposed cuts to mandatory programs, and conservative influencers might not believe that SAVE America grants are strong enough. The best chance to pass a bill in September would be for Republicans to narrowly focus on the Iran spending request and SAVE Act grants.
Congress Will Look to Punt Major Priorities to the “Lame Duck” Session
With Congress gridlocked over how to pass the President’s top priorities including the SAVE America Act, there are a number of major policy items that could be punted into the “Lame Duck” session of Congress following the November 3 elections. This includes many major bills that have started to move through Congress and program authorizations that expire at the conclusion of the fiscal year on September 30, 2026.
Discretionary federal funding for all government agencies. Since there is no agreement on topline spending levels it is likely a Continuing Resolution (CR) will be needed to avert another government shutdown.
The current Farm Bill expires and will need to be temporarily extended.
Authorization for transportation spending through the Highway Trust Fund (HTF) expires.
Over 15 energy research and science grants under the CHIPS Act expire.
Over 100 grants for transportation – under the Infrastructure Investment and Jobs Act of 2022 expire.
The National Defense Authorization Act expires in December.
With 23 more session days in the House before the midterm elections, the time for action is becoming limited. Republicans hope they have enough time left to address military funding and the SAVE America Act through reconciliation in September. Many other priorities will be punted into the lame duck and addressed after the election.
Rising Risk of a Government Shutdown
While House Republicans have moved two of the twelve annual federal funding bills, the Senate is locked in a standstill. Senators are unable to move bills onto the floor because Democrats are opposing increases in defense funding without equal increases in non-defense spending. The rift means that it will be impossible to get appropriations bills done on time.
Republicans want to avoid a government shutdown. Democrats, however, might see a shutdown as a politically advantageous strategy ahead of the midterm elections in November. In a party that is consistently being pulled to the left, Democrats might want to once again demonstrate their opposition to President Trump by denying Republicans the 60 votes necessary in the Senate to pass a CR and keep the government operating.
Republicans on the Hill are banking on the fact that both parties will want to avoid a government shutdown that would send Washington into chaos heading into an election. The risk of the strategy is that it will require Democratic votes at a time when partisan tensions are at their highest. The dispute over topline numbers, defense spending, and the ongoing conflict in Iran could give Democrats the policy excuse they need to force a government shutdown. As the political rhetoric between the parties heats up the situation bears close watching.
President Trump Touts Defense Investment at NATO Summit
On Wednesday, the White House released a fact sheet outlining agreements secured by NATO allies to invest in the U.S. defense industry. In total, NATO allies agreed to invest $3 billion in deals and joint ventures with Lockheed Martin, Northrop Grumman, RTX, Raytheon, Boeing, and Anduril. The White House noted the investment will help support small and mid-size American companies, along with American jobs, while rebalancing the NATO relationship. Last summer, President Trump secured commitments from NATO allies to invest 5% of their GDP annually in defense.
Related to those commitments, also on Wednesday, President Trump called Spain “a terrible partner in NATO” and said he would cut off trade with the country over defense spending, or lack thereof. According to administration officials, the Departments of Treasury and Commerce and Office of the U.S. Trade Representative will present options for an embargo on certain Spanish products, and the President could likely choose from a number of authorities to authorize the tariffs. It is unclear how any change in trade treatment for Spain would impact trade with the European Union, of which Spain is a part.
Obamacare Premium Increases in 2027
According to research from KFF, health insurance companies offering Obamacare plans are asking for significant premium increases for next year. Premium hikes in 2026 have led to millions of Obamacare policyholders dropping their coverage (falling from 22.1 million to 19.2 million), with experts estimating that this trend will continue as premiums increase. Insurers like Centene and Blue Cross Blue Shield of Illinois are requesting 28% and 15% premium increases next year, respectively. KFF has estimated that the median increase is 14% for 2027, based on the publicly available filings. Final premium rates will be finalized later in the summer, ahead of the midterm elections where affordability is expected to be one of the most significant voter issues.
Trump and Zelensky Meet at NATO Summit
President Trump met with Ukrainian President Volodymyr Zelensky this week on the sidelines of the NATO summit, leading to a new agreement that could give Ukraine a key advantage in its ongoing war with Russia. In a joint appearance with Zelensky, the President announced that the U.S. would allow Ukraine to co-produce Patriot interceptors, which are key to stopping Russian ballistic missiles. There is currently a global shortage of Patriot interceptors that has only deepened since the start of the war with Iran, limiting the amount of interceptors that Ukraine’s allies have been able to provide. However, although Zelensky has long wanted the ability to produce Patriot interceptors, new interceptors take more than two years to build and therefore would not make an immediate impact.
The President also announced that the U.S. would purchase Ukrainian drones, which have been devastatingly effective in Ukrainian counterattacks on Russia.
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