House Republicans Struggle to Balance Trump's Tax Cut Ambitions with Budget Constraints

House Republicans are attempting to advance Donald Trump's ambitious "one big beautiful bill" this week through a budget resolution that will define the parameters of a potential tax deal. However, they face significant challenges in accommodating even a small portion of Trump's 17 tax cut proposals.

Speaker of the House Mike Johnson is navigating a razor-thin margin between deficit hawks and apprehensive GOP moderates. Both factions threaten to derail the effort before it gains traction. Johnson acknowledged the uphill battle, stating, "This is a prayer request."

At the heart of the issue for Johnson and his party lies the stringent mathematics, particularly on the tax front, stemming from Trump's freewheeling campaign promises. Yahoo Finance identified over a dozen pre-election tax pledges from Trump, which have now grown to 17 distinct ideas, primarily involving tax cuts.

Even conservative estimates place the cost of Trump's tax proposals at approximately $10 billion. More ambitious projections paint a grimmer picture, forecasting up to $18 trillion in deficit spending over the next decade.

Meanwhile, Johnson and his colleagues have allocated no more than $4.5 trillion for tax cuts within an overall bill that would balance this with $1.5 trillion in spending cuts. Not only is this insufficient to cover Trump's tax aspirations, but the proposed cuts face opposition on their own merits, raising concerns about an additional $3 billion in deficit spending.

"The big question for me is whether the markets balk at that or not," said Terry Haines, founder of Pangea Policy. "Once the degree of deficit increase becomes clear, the markets will have to decide whether they support it."

Johnson is already facing two public "no" votes from Republican Representatives Tim Burchett and Victoria Spartz, who demand deeper spending cuts. Other Republicans are contemplating following suit, citing concerns over potential reversals of planned healthcare cuts. Democrats are expected to unanimously oppose the initiative, labeling it a giveaway to the wealthy.

Tax Cut Plan Squeeze

The financial constraints have constrained House Republicans to an allotment for tax cuts that may not even suffice to fulfill the first item on Trump's list: extending the expiring provisions of the 2017 Tax Cuts and Jobs Act. The Committee for a Responsible Federal Budget (CRFB) estimates this alone could cost between $3.9 trillion and $4.8 trillion over the decade.

White House Press Secretary Karoline Leavitt outlined Trump's eight top tax priorities, including extending the 2017 law, alleviating state and local taxes, eliminating taxes on tips, overtime pay, and Social Security benefits, reducing corporate tax rates for domestic production, closing the carried interest loophole, and minimizing tax breaks for sports stadium owners. The total cost of these proposals, according to the CRFB, ranges from $5 trillion to $11.2 trillion.

Additional ideas promoted by Trump during his campaign but later downplayed remain on the table. These include fully deducting car loan interest, providing tax credits for family caregivers, and further expanding the child tax credit. The combined impact of these on the federal budget over the next decade is estimated between $10 trillion and $18 trillion, based on projections from both the CRFB and the Yale Budget Lab.

As Republicans grapple with fulfilling their central 2024 promise amidst a $36 trillion national debt, tough choices or creative accounting may be necessary.

Growing Uncertainty

Initial efforts to finance these initiatives have raised concerns among moderate Republicans. The budget blueprint proposed this week foreshadows potential cuts of $880 billion to Medicaid, a government healthcare program for low-income individuals and families. This jeopardizes a program heavily relied upon by voters, even in Republican districts.

Moderate figures like Representative Jeff Van Drew of New Jersey are at risk of siding against Johnson and other Republican leaders due to these cuts. An analysis by the left-leaning Center for American Progress suggests that Van Drew's district alone could lose up to $2.18 billion in Medicaid funding, potentially affecting healthcare for 50,000 of his constituents.

Republicans also face political pressure to secure a deal, having made tax cuts a cornerstone of their 2024 campaign strategy. Key provisions of the 2017 law expire at the year's end, leading Republicans to label their failure to act as "the biggest tax increase in history."

Haines currently estimates an 80% likelihood of a tax deal this year. He anticipates inclusion of proposals such as eliminating taxes on tips and increasing the SALT cap due to their strong political support. The bill's progression, he suggests, will be as swift as Washington allows, but it could induce market volatility in the short term. "We're about to enter a period of substantially more uncertainty," Haines said.