Unlocking access to the White House Watch newsletter comes at no cost to you; it serves as your roadmap to navigating the implications of the 2024 US election for both Washington and the global stage.
The author of this piece is a contributing editor for the Financial Times, serves as the chief economist at American Compass, and pens the “Understanding America” newsletter.
An unexpected twist in budget discussions is set to become a focal point in US debates surrounding tax and spending adjustments. Unlike the magic tricks that captivate and inspire, this particular budget maneuver, criticized by Congressman David Schweikert from the House Ways and Means Committee, amounts to nothing more than a “fraud.”
The majority of tax reductions implemented by the Republicans during President Donald Trump’s first term with the Tax Cuts and Jobs Act of 2017 (TCJA), which increased the national deficit by $1.7 trillion, are due to expire at the close of 2025. Republicans intentionally incorporated an expiration date to downplay the apparent cost of the package and reduce the perception of its contribution to the national debt. This expiration was also a strategic move to pass the “reconciliation” requirement, allowing budget-related laws to sidestep Senate filibusters provided they don’t increase long-term deficits.
Now, the scenario has reached a critical point. Without new legislative action, the existing law dictates that tax rates will revert to their pre-TCJA levels. Continuing the current tax policy would result in nearly $5 trillion in lost revenue over the next decade.
Addressing a $1.7 trillion addition to deficits was quite the feat in 2017, back when the annual budget deficit tallied at $693 billion, while the federal government allocated $269 billion to service a public debt of $15 trillion. However, expanding this burden further in 2025, with a projected annual budget deficit of $1.9 trillion and $952 billion in federal spending to manage over $30 trillion of public debt, seems utterly reckless. Even if the TCJA expires, the Congressional Budget Office anticipates the deficit reaching $2.1 trillion by 2030, with interest payments surpassing $1.3 trillion that year.
For those who value fiscal responsibility, the challenge is clear. A truly conservative approach would involve increasing revenue combined with spending cuts, swiftly reducing deficits, and steering the budget toward equilibrium. However, this is not the direction the Republican party appears to be taking.
Pseudo fiscal conservatives, despite their loud objections, ultimately end up voting for these significant tax cuts. They acknowledge that extending all TCJA tax cuts is unaffordable. Consequently, substantial spending reductions are necessary to mitigate the deficit’s impact—perhaps reducing a projected $4 to $5 trillion deficit hit to a net cost of $2 trillion. They realize, too, that making these tax cuts permanent violates reconciliation rules due to the enduring higher deficits it would cause.
This situation brings forth a controversial suggestion: why not just pretend the tax cuts aren’t supposed to end? Although they terminate under “current law,” keeping them under “current policy” costs nothing. If considered the baseline for budget assessments, keeping these policies seems to entail no additional cost. Letting them expire would effectively amount to one of the largest tax increases in history.
Such an argument’s fallacy should be obvious. The very reason Congress faces this issue is that the same individuals advocating these cuts made them temporary to downplay costs initially. Passing the TCJA was possible because it didn’t alter long-term deficits under current law. Proposing a permanent rate cut was never an option and couldn’t have gained approval. Complaining about reverting to a policy never meant to be permanent is undemocratic. Moreover, claiming there’s no cost to making these changes permanent ignores significant financial implications.
Accusations of dishonesty aside, legally cautious language underscores that when Mike Crapo, Senate Finance Committee Chair, claims, “extending current policy doesn’t increase the deficit,” reality contradicts this statement. Reports suggest Senate Majority Leader John Thune and House Speaker Mike Johnson are poised to support this viewpoint, aligning with Treasury Secretary Scott Bessent’s indication that the Trump administration may back this direction.
What makes these tax cuts so compelling to Republicans, leading them to seemingly disregard national interests and compromise their integrity so openly? Perhaps Shakespeare would offer insight, though this remains a mystery to policy analysts.
