Donald Trump's Budget-Slashing Spree: A Path to Tax Cuts?
President Donald Trump's early actions as president have ranged from controversial to mundane. While seeking substantial cuts in foreign aid, consumer protection, and healthcare, he also intends to eliminate the one-cent coin, a move many Americans may not notice.
Beneath the seemingly disparate proposals lies a unifying theme: funding tax cuts. Trump's top priority is extending tax cuts set to expire in 2025 and implementing new ones. This requires significant budget savings elsewhere.
Trump's previous tax cuts in 2017 faced less resistance. Then, the national debt stood at $20 trillion, with 74% held by the public. Congressional limits on debt-increasing legislation existed, but market concerns about a debt crisis were minimal.
Now, the national debt has soared to $36 trillion, with nearly 100% held by the public. Financial markets indicate that the debt is unsustainable, evident in rising long-term interest rates despite falling short-term rates. Republican budget hawks warn that new tax cuts must be accompanied by major spending cuts.
Trump has assembled a team of efficiency experts led by Elon Musk, whose cost-cutting measures at Twitter have served as a model. Musk's goal is to identify $500 billion in annual spending cuts, aligning with the techno-libertarian ideals of Trump supporters like Peter Thiel and Marc Andreessen.
Eliminating the penny would generate negligible savings, as it costs just $454 million annually to produce. However, Trump argues that it is a money-loser, costing 3.69 cents to produce.
Larger targets include the US Agency for International Development, with a $40 billion budget, and a cap on health research grants intended to save billions of dollars.
Increased tax revenue is also a consideration. Trump supports a range of tariffs, wrongly claiming they are taxes paid by foreigners. He has proposed eliminating a tax break for certain professional investors, which could yield $15 billion annually.
Many of these plans require congressional authorization, making them uncertain. Trump has the unilateral authority to eliminate the penny and impose tariffs, but cutting agency budgets and withholding congressionally authorized spending may be illegal.
Musk's efficiency efforts provide a roadmap for congressional Republicans who support tax cuts and limited government. Despite the GOP's traditional stance on these issues, some members may resist cuts that impact their constituents.
The experiment in libertarianism continues, with the outcome yet to be determined.