By Ian Ward

Presented by The Campaign for Sustainable Rx Pricing

President-elect Donald Trump offers his hand to Elon Musk backstage during a campaign rally Oct. 5, 2024, in Butler, Pennsylvania. | Anna Moneymaker/AFP via Getty Images

INTRA-PARTY BEEF — After a frantic few days of political scrambling, House Republicans — with Democratic support — have finally settled on a plan to fund the government through March, averting a politically costly government shutdown ahead of the holidays. The path to the latest proposal pitted Republicans against their fellow Republicans, with billionaire Elon Musk and President-elect Donald Trump intervening to kill an initial deal brokered by Speaker of the House Mike Johnson, House conservatives joining together to kill a second proposal brokered by Johnson and various factions of the GOP pushing to include their various priorities in the final package.

Yet beyond the squabbling on Capitol Hill, the fight has exposed a deeper ideological divide within the MAGA coalition over the relative importance of “fiscal conservatism” — the age-old conservative preoccupation with slashing government spending and reducing the national debt. As Trump embarks on his second term in office with a long list of plans that are likely to grow the deficit, congressional Republicans’ ability to come to some sort of workable resolution on the issue could determine the fate of Trump’s second-term legislative agenda.

Of course, so-called “fiscal responsibility” — or efforts to reduce government spending, decrease the national debt and generally shrink the size and scope of the federal government in general, and the welfare state in particular — were a hallmark of the Tea Party-style conservatism that transformed the GOP during the Obama years. On Capitol Hill, that style of fiscally-minded conservatism — embodied most memorably by Republican budget wonks like Paul Ryan and Mick Mulvaney — lent itself to an aggressive and high-stakes style of legislative brinkmanship.

During the Obama years in particular, Tea Party conservatives used various legislative maneuvers, especially fights over appropriations bills and efforts to raise the debt ceiling, as opportunities to extract spending cuts from Democrats and more spendthrift Republicans. These efforts were often selective and somewhat inconsistent — additional military spending, for instance, was often exempted from criticism — but they were bolstered by a clear ideological mission: less federal spending meant a smaller government footprint, which in turn meant more freedom (and lower taxes) for the average American citizen.

Trump, of course, blew up this consensus as part of his broader move to scramble the ideological matrix of the post-Reagan Republican Party. Aside from passing his 2017 tax bill and waging a brief (and ultimately unsuccessful) war on Obamacare, Trump largely eschewed fiscal conservatives’ policy goals and rhetoric. He struck a tentative political peace with pillars of the welfare state like Social Security and Medicare — the longtime bête noire of budget hawks and fiscal conservatives — and forced a government shutdown at the end of 2018 in a failed attempt to get Congress to spend more money to fund his border wall.

By the end of Trump’s first term, the national debt had risen by approximately $7.8 trillion, the largest four-year increase in American history up to that point. Nevertheless, many congressional Republicans — including former Tea Party stalwarts like Sen. Ted Cruz (R-Texas) — have continued to praise Trump’s first-term economic accomplishments for stimulating growth and boosting productivity.

But intellectual inconsistency aside, Trump’s shift away from the Tea Party’s hardline fiscal conservatism is grounded in a sound political insight: Austerity measures and budget reductions — especially those targeting major welfare programs — just aren’t that popular with voters. That insight has been bolstered by research from political scientists and historians suggesting that the driving force behind the Tea Party movement’s grassroots mobilization was never fiscal conservatism. To the contrary, rank-and-file Tea Party supporters were motivated by anger over progressive-coded cultural changes, which conservative elites channeled into an anti-government project that was compatible with a more libertarian style of economics.

During the Trump era, though, the leaders of the more populist wing of the MAGA movement — led by Vice President-elect JD Vance — have begun to break with this paradigm, explicitly targeting voters with a message that combines social conservatism with a type of economic populism and nationalism that eschews the libertarian preoccupation with reducing deficits and shrinking government. That change is generally in line with the populist direction that Vance and others have tried to push the GOP; after all, an aspiring populist party can only go so far in reigning in broadly popular social welfare programs. Trump’s selection of Vance and other high-profile economic nationalists for senior positions in his cabinet suggested that this style of economic populism was ascendant within the MAGA coalition, while old-school fiscal conservatism was on the outs.

Yet the ongoing intra-GOP fight on Capitol Hill suggests that fiscal conservatives have more staying power and political leverage than outside observers may have thought. On Thursday afternoon, 38 House Republicans — many of them hailing from the old Tea Party wing — voted against a Trump-endorsed deal that would have temporarily funded the government while suspending the debt ceiling through 2027. As Rep. Chip Roy (R-Texas), the de facto leader of the remaining bloc of fiscal conservatives, put it in a post on X, budget hawks are not willing to “to raise or suspend the debt ceiling (racking up more debt) without significant & real spending cuts attached to it” — even if it means bucking Trump.

To be sure, the fact that an overwhelming majority of Republicans voted for a deal to suspend the debt ceiling without extracting major spending cuts — a move that would have been virtually inconceivable during the height of the Tea Party era — shows how much Trump has upended the fiscal consensus on Capitol Hill. But the prolonged fight over the spending deal suggests that the debate between economic populists and fiscal conservatives — all of whom simultaneously claim to be MAGA loyalists — is far from settled.

To the contrary, the conflict between different schools of MAGA fiscal thought seems to be baked into the next Trump administration. On the one hand, Elon Musk and Vivek Ramaswamy have aligned their DOGE initiative with a more conventional slash-and-burn approach to government spending and budget reduction — as evidenced by Musk’s intervention in the congressional debate this week. In this, they are likely to find an eager ally in Russ Vought, Trump’s choice for director of the Office of Management and Budget, who rose to prominence in Washington as the Tea Party’s budget wonk and remains a committed deficit hawk.

Economic nationalists like Vance, who are less monomaniacally focused on deficit reduction and who have signaled openness to government spending when it advances goals like boosting domestic manufacturing or promoting family formation, seem likely to counter with some gentle pushback. This debate is likely to be more principled than personal — Vought was a close advisor to Vance while he was in the Senate, and Vance has endorsed some reforms to welfare programs — but the divisions remain real nevertheless.

The stakes of this debate remain high. Nonpartisan studies have found that Trump’s proposed agenda of tax cuts, tariff increases and increased spending on the military and mass deportation efforts could increase the federal deficit by an additional $7.5 trillion across the next decade. Passing the entirety of that agenda into law would require the conservative budget hawks to jettison some of their spending scruples — an ask that, as the events on Capitol Hill this week demonstrated, Trump can’t necessarily take for granted.

Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com. Or contact tonight’s author at iward@politico.com or on X (formerly known as Twitter) at @ianwardreports.

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Big Pharma’s patent abuse drives up drug prices and blocks competition – costing patients and the U.S. health care system billions. Patent thickets protect profits, not innovation, and extend monopolies on blockbuster drugs while millions of Americans struggle to afford their medications. This year, the Senate unanimously passed Cornyn-Blumenthal, a bipartisan solution to curb these anti-competitive tactics. Time is running out – Congress must pass Cornyn-Blumenthal and deliver relief to patients before it’s too late. Learn more.

— House passes government spending package after Trump, Musk fueled chaos: The House passed a stopgap package this evening that pushes the government funding deadline to March, as Congress races to avoid a looming deadline that would shut down the government in six hours. The package passed 366-34, with the support of 196 Democrats and 170 Republicans. It now moves to the Senate, where leaders are hoping to lock in an agreement to fast-track final passage of the measure, racing against the midnight government shutdown deadline.

— Biden abandons mass student debt cancellation plans amid GOP lawsuit: The Biden administration is officially withdrawing its sweeping proposals to cancel student debt for tens of millions of Americans, effectively closing the door on mass loan forgiveness in the waning days of Joe Biden’s presidency. The Education Department said in a notice today that it was rescinding two of its major pending proposals to cancel student debt, one of which was already preemptively blocked by a federal judge in a lawsuit brought by Republican attorneys general. In withdrawing the plans, the Education Department cited the “operational challenges” of implementing both rules and said the administration wants to use its remaining time to prioritize “helping at-risk borrowers return to repayment successfully.”

— Deadly Christmas market attack shakes Germany: A driver plowed a car at high speed into crowds of people at a Christmas market in the eastern German city of Magdeburg, adding further tension to a national election campaign already riven by an increasingly bitter debate over migration. Right-wing parties seized on reports that the driver was a man from Saudi Arabia, even before that or any motive for the apparent attack was confirmed. The incident took place almost eight years to the day after a terrorist drove a truck into a Christmas market in Berlin. At least two people were killed this evening, including a young child, according to the prime minister of Saxony-Anhalt, Reiner Haseloff, of the center-right Christian Democratic Union (CDU). News agency AFP reported that “60 to 80” people were injured, citing the local rescue service.

— Arizona prosecutors seek access to trove of Trump allies’ emails, texts: The Arizona prosecutors who charged some of President-elect Donald Trump’s top allies for their roles in his effort to subvert the 2020 election have obtained — but not yet reviewed — a large cache of their emails, texts and phone records. Recent court filings show that Attorney General Kris Mayes’ team obtained search warrants months ago for data from the Google and Apple iCloud accounts of close Trump allies such as Mark Meadows, Rudy Giuliani, John Eastman and Boris Epshteyn. The data covers the three-month period between Nov. 1, 2020, and Feb. 1, 2021.

You read POLITICO for trusted reporting. Now follow every twist of the lame duck session with Inside Congress. We track the committee meetings, hallway conversations, and leadership signals that show where crucial year-end deals are heading. Subscribe now.

PAPAL CRITIC SENT TO VATICAN — President-elect Donald Trump said today that he is picking the head of a right-wing Catholic advocacy group and critic of Pope Francis to serve as ambassador to the Holy See, potentially teeing up tensions with the Vatican. In a post on Truth Social, Trump said that Brian Burch, head of the group Catholic Vote, “loves his Church and the United States — He will make us all proud.” Trump also praised Burch for advocating for him and encouraging Catholics to vote for him in 2024. Burch will face a Senate confirmation process, but it is unlikely he will encounter stiff resistance from Republicans, as his views aren’t considered controversial in the party.

COREY’S BACK — Corey Lewandowski, Donald Trump’s former campaign manager, is helping Kristi Noem with transition planning for the Department of Homeland Security, according to four people familiar with the Trump transition. In recent weeks, Lewandowski has sat in on transition meetings with Noem, Trump’s pick to head DHS, and consulted with her on political appointees for the sprawling agency, said three of the people, who were granted anonymity as a condition of sharing details on the transition.

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Supporters of the far-right Alternative for Germany (AfD) political party gather in Erfurt, Germany on August 31. | Sean Gallup/Getty Images

ELON’S ADVENTURISM — Elon Musk is backing the far-right Alternative for Germany (AfD), triggering an outcry in Berlin in the run-up to a critical snap election. “Only the AfD can save Germany,” the billionaire X owner wrote on the platform today in the latest of a series of endorsements of European far-right parties.

The AfD endorsement also served as a stark rebuke by U.S. President-elect Donald Trump’s most powerful adviser of the conservative alliance that is likely to lead Germany following a snap election set for Feb. 23. Friedrich Merz, the conservative candidate leading the race to become next chancellor, has portrayed himself as a leader who’d be able to make “deals” with Trump despite European fears the president-elect will start a trade war and withdraw American military support for Ukraine.

Among mainstream political leaders in Germany, however, the post prompted a backlash. “We have freedom of speech, which also applies to multi-billionaires,” Chancellor Olaf Scholz said at a press conference in Berlin. “But freedom of speech also means you can say things that are not right and do not contain good political advice.”

BANK NOTE — The Central Bank of Russia decided that discretion was the better part of valor today, suspending its campaign of interest rate hikes against a backdrop of increasingly sharp criticism from businesses and politicians. The CBR left its key rate unchanged at 21 percent, having said at its last meeting in October that a further increase may be needed to keep a lid on rising inflation. It had jacked up the key rate by a total of 5 percentage points in its previous three meetings.

The decision follows repeated outbursts from some of Russia’s most powerful industrialists, whose businesses have been squeezed hard by the sharp rise in rates this year. Their protests appeared to have finally made an impression in the Kremlin, which had until now consistently supported Nabiullina’s efforts, mindful that its heavy spending on the war in Ukraine has driven the economy to overheat.

POLITICO Pro's unique analysis combines exclusive transition intelligence and data visualization to help you understand not just what's changing, but why it matters for your organization. Explore how POLITICO Pro will make a difference for you.

THE YEAR IN BUSINESS DYNAMISM — A spike in entrepreneurial activity during the pandemic year of 2020 sparked a debate over whether it was a statistical anomaly or perhaps a temporary event caused by workers reassessing their lives and career paths and trying something new. But four years later, entrepreneurial activity is still elevated. The rates of people starting new businesses remain higher than in the pre-pandemic days — and so do rates of business deaths, a crucial but underappreciated marker of economic dynamism. It’s not clear what’s driving this phenomenon or how long it will last, but Sarah Eckhardt writes in the Agglomerations Substack that if it continues, it bodes well for new jobs, technological inventions, and overall economic growth.

On this date in 1977: President Jimmy Carter signs into law a bill that sharply increases Social Security taxes for 107 million American workers in an effort to keep the pension system solvent into the 21st century. | Barry Thumma/AP

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A message from The Campaign for Sustainable Rx Pricing:

Big Pharma’s patent abuse drives up drug prices and blocks competition – costing patients and the U.S. health care system billions. Patent thickets protect profits, not innovation, and extend monopolies on blockbuster drugs while millions of Americans struggle to afford their medications. This year, the Senate unanimously passed Cornyn-Blumenthal, a bipartisan solution to curb these anti-competitive tactics. Time is running out – Congress must pass Cornyn-Blumenthal and deliver relief to patients before it’s too late. Learn more.

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