Senate Republicans appear to be in a mutiny over the House-passed extension and expansion of the 2017 tax cuts that were enacted in the first Trump administration after the Congressional Budget Office (CBO) published an estimate on May 20 that the proposed extension and expansion of the tax cuts, along with other changes, will add a projected $2.3 trillion to deficits through 2034.
The problem is that there are only $1.4 trillion of offsets to the $3.7 trillion of revenue reductions proposed, putting Senate Republicans who say they want to reduce the deficit into definite noes on the legislation. Whether the tax cuts will prospectively stimulate economic growth that offsets the CBO’s estimates is neither here nor there — economists will debate those effects, for certain — the reality is that Congress is going to respond the CBO estimate, where tax cuts add to the deficit.
Let’s say for the sake of argument the CBO is right. Do Senate Republicans now think we can tax our way out of the deficit?
Compared to the current baseline, where the deficit will rise from $1.87 trillion in 2025 to $2.2 trillion by 2034 — even with the Trump tax cuts expiring — shows a daunting fiscal outlook for the U.S. That is, by doing nothing, and letting taxes increase on 80 percent of Americans on Dec. 31, and we are still projected to borrow $19 trillion.
The problem is there is $84 trillion of spending automatically in the pipeline, including $19.7 trillion of Social Security expenditures, $13.2 trillion for Medicare, $7.7 trillion for Medicaid, $9.7 trillion for defense, $7.7 trillion for non-defense and $12.5 trillion net interest owed on the debt. But there is only $65.4 trillion of projected revenues through 2034 as more than 900,000 Baby Boomers retire every year and there weren’t enough babies born the past 65 years to replace them.
That’s with allowing the tax cuts to expire. Whereas, CBO projects that passing the tax bill will reduce tax revenues by $3.7 trillion, which would take the baseline revenues to about $61.7 trillion.
Doing nothing will still allow the debt to explode over the next decade reaching $52 trillion by 2034 according the White House Office of Management and Budget, with the Social Security and Medicare trust funds on the baseline still set to go dry in 2035 and 2036. To be clear, that will happen whether or not the income tax cuts are extended, as the trust funds have a separate revenue stream not impacted by the current legislation because budget reconciliation measures are not allowed to lead to shortfalls in the trust funds.
And that’s all being generous using the government’s math that is never right. In reality, the $36.2 trillion national debt has been increasing on average 8 percent a year since 1980 once wars and recessions are factored in. If it continues growing at that rate, it will top $74 trillion by 2034, and $100 trillion by 2038.
The Senate Republican argument against extending the tax cuts then becomes akin to an argument in favor of tax increases as doing more to shore up deficits, since the impact of defeating the legislation is everyone’s taxes go up at the end of the year.
Now, individual members will argue that they want more spending cuts, which is fine, they should propose them. A good place to start might be the $170 billion of savings identified by the White House Department of Government Efficiency (DOGE), thereby reducing agency budgets accordingly.
If the agency baseline spending was reduced by $170 billion a year, that would add up to another $1.7 trillion of offsets, bringing the deficit impact down to $600 billion. So, just raise it to $230 billion a year in more cuts.
The trouble is, enacting the DOGE cuts was already defeated by the Senate earlier this year. They don’t want to cut spending! But maybe if they just changed the name, some members would change their tune. Don’t like DOGE? Fine. Would you mind cutting another $2.3 trillion of spending? Call it whatever you want.
President Donald Trump has outlined some red lines: Don’t mess with the existing Social Security, Medicare and Medicaid programs that go to citizens. Kick 1.4 million illegal aliens off the rolls? That’s fine.
The key is Senate Republicans need to work together to extend and expand the Trump tax cuts — no taxes on tips, overtime and tax relief for senior citizens are key provisions the President ran on and the American people are expecting — or on Dec. 31, they will be blamed for breaking their promises.
On Dec. 31 almost everybody’s taxes will increase (except for blue states who get back their mortgage and state and local tax deductions). Taxes will go up, and so will the debt anyway all the same. So, the American people will pay more, and maybe the nation still goes broke. Not a great outlook. Why not just cut another $2.3 trillion of spending?
Robert Romano is the Executive Director of Americans for Limited Government.
