Many cuts are set to expire at the end of this year. With Trump and his party back in power, however, the path is clear for Republicans to extend them.
But at what cost? A report by the nonpartisan Congressional Budget Office found that preserving the tax reductions for the next 10 years would add $4.6 trillion to the federal deficit.
The deficit stands at $1.8 trillion, as of 2024, meaning that the government spent $1.8 trillion more than it collected in the last fiscal year.
U.S. President Donald Trump holds a news conference to mark six months since the passage of the Tax Cuts and Jobs Act, in the White House East Room in Washington, U.S., June 29, 2018.
Overspending has consequences, starting with Social Security
Overspending has consequences. Among them: Social Security is projected to run short of funds, triggering a benefit cut of 17% in 2035.
With that math in mind, Republicans in Congress circulated a 50-page list of ideas to cover the costs of extending the tax cuts. The goal, according to a New York Times analysis, is to craft a bill that pays for tax cuts and an immigration crackdown without digging the deficit deeper.
Among the cost-cutting proposals:
Enact a 10% tariff on all imports. The tax could generate $1.9 trillion over 10 years, but many economists say American consumers would foot the bill.
Eliminate the tax deduction for mortgage interest. Homeowners would pay more taxes, but Congress would claw back $1 trillion over 10 years.
Eliminate Health Savings Accounts, and the attendant tax savings, replacing them with a Roth-style account. Savings: $110 billion.
Require many Medicaid recipients to work. Savings: $100 billion.
Eliminate the head of household tax-filing status. That would save $192 billion, but it would hurt many taxpayers with children.
Cut Pell Grants. The Biden administration increased aid to low-income college students. Reducing it would save an undetermined sum.
The point of the cost-cutting exercise is to gauge which cuts might be palatable to congressional Republicans and their constituents: In other words, what they might be willing to lose in exchange for lower taxes.
House Budget Committee Chairman Jodey Arrington (R-TX) speaks during a press conference on proposed legislation dealing with budgetary reform, as the deadline to avoid partial government shutdown nears at the Capitol in Washington, U.S., January 18, 2024.
If Congress wants to cut, its options are few
If Congress wants to cut trillions of dollars in government spending, however, its options are limited.
“About two-thirds of all government spending is nondiscretionary,” covering Social Security, Medicare and debt payments on the deficit itself, among other items, said Don Leonard, assistant professor of practice in city and regional planning at The Ohio State University.
“So, they really only have a third of the federal budget to work with. And half of that is defense spending.”
The Trump tax cuts are popular. Joe Biden promised to keep most of them when he assumed the presidency, vowing to raise taxes only on the wealthiest Americans.
For elected officials, tax cuts are a no-brainer. A 2024 poll released by the conservative Americans for Prosperity found that 90% of voters support preserving current tax rates.
But Americans are also worried about Social Security, and about the deficit. In a recent USA TODAY/Suffolk University poll, a majority of voters said Congress should focus on cutting the deficit, even if it means not extending the tax cuts.
“You’d expect most people would understand that changes to the tax rate have to be paid for in some way,” said Chester Spatt, a finance professor at Carnegie Mellon University’s Tepper School of Business.
The deficit grew steadily during both the Trump and Biden administrations, if you ignore COVID-19 related surges.
Trump predicted his tax cuts would pay for themselves
Trump predicted his tax cuts would pay for themselves, by boosting the economy. That evidently didn’t happen, although the COVID-19 crisis made it virtually impossible for economists to parse the precise economic effects.
Biden promised to boost revenue and reduce the deficit by raising taxes on the rich, and by auditing wealthy tax cheats. That initiative delivered new revenue, but not nearly enough.
Republicans have carried the banner for reducing the deficit. Congressional conservatives fought against eliminating the federal debt ceiling, maintaining that the government must discipline its spending. That stance put them at odds with Trump, who supported getting rid of the ceiling.
“Conservative Republicans do care about the deficit,” Spatt said. “And one of the criticisms that’s sometimes made about President Trump is that he doesn’t care about the deficit.”
Whatever their deficit concerns, Republicans in Congress may struggle to reach consensus on enough spending cuts to make a meaningful dent in the national debt.
The menu of proposed cuts asks lawmakers to rate them according to “viability.” The list includes “pretty controversial stuff,” said William Hoagland, a senior vice president at the Bipartisan Policy Center, speaking to USA TODAY earlier this month.
“If the government had the will, there’s no issue. We have plenty of ideas to reduce the deficit,” said Steven Hamilton, an economist at The George Washington University. “The problem is, we disagree on them.”
And Republicans cannot afford defections, because they need a majority to get a bill passed.
'They'll kick the can'
Thus, some observers expect Congress to simply renew the Trump tax cuts, without identifying any significant spending cuts that might pay for them.
“They’ll just roll it over,” Hamilton said. “They’ll kick the can.”
A conflicted Congress could spell trouble ahead for Elon Musk and his Department of Government Efficiency. Musk once promised to cut federal spending by $2 trillion. But his department has no official authority.
“The only way that Musk can cut almost anything is by getting something through Congress,” Leonard said.
And Congress may recoil from Musk’s cuts.
“Anyone who has to run for reelection and has the option of either cutting benefits or swiping the national credit card and racking up the debt,” Leonard said, “will always choose to rack up the debt.”
