Trump's Sweeping Agenda: Balancing Tax Cuts with Spending Reductions
President Donald Trump's early actions have ranged from ambitious to trivial. Notably, he seeks significant spending reductions in foreign aid, consumer protection, and healthcare. Conversely, he aims to eliminate the penny, a move unlikely to be missed by most Americans.
While seemingly disparate, these initiatives share a common goal: financing tax cuts. Trump prioritizes extending expiring tax cuts through 2025 and implementing new ones. This endeavor necessitates substantial budget savings elsewhere.
Trump's previous tax cuts in 2017 were more feasible. At the time, the national debt stood at $20 trillion, with public debt at 74% of GDP. Congressional limits existed on debt expansion, but market concerns about a debt crisis were minimal.
Today, the situation is different. The national debt has surged to $36 trillion, and public debt approaches 100% of GDP. Markets signal that the debt is unsustainable, reflected in rising long-term interest rates. Republican budget hawks warn that additional tax cuts require significant spending cuts.
Trump has assembled a team led by "efficiency czar" Elon Musk, who has implemented drastic cost-cutting measures at Twitter. A similar approach could be applied to government, potentially resulting in a "techno-libertarian revolution" sought by tech billionaires like Peter Thiel and Marc Andreessen.
Implementing tax cuts for individuals (expiring this year) for another decade would cost $4 trillion in lost revenue, adding to the debt unless offset by spending reductions. Trump's numerous other tax cut proposals would further increase the debt by $1 trillion or more.
To address these costs, Trump must identify offsetting spending cuts. Eliminating the penny would provide minimal savings, as the mint spends only $454 million annually on one-cent coins. Nevertheless, it would demonstrate Trump's commitment to fiscal responsibility.
Substantial savings lie in larger targets. Trump aims to close the US Agency for International Development (budget: $40 billion) and cap health research grants (saving several billion dollars). Musk's team is reviewing all federal agency budgets.
Trump also seeks to increase tax revenue through tariffs and eliminate a tax break for professional investors (yielding $15 billion annually). However, many of these plans require congressional approval, complicating their implementation.
Trump has unilateral authority to eliminate the penny and levy tariffs. However, budget cuts require congressional action, and withholding funds authorized by Congress may be illegal. Lawsuits have already been filed challenging Trump's executive orders.
Musk's efficiency efforts serve as a blueprint for congressional Republicans. While many GOP members support low taxes and limited government, some may resist cuts that impact their constituents.
Ultimately, the feasibility of Trump's agenda hinges on his ability to balance tax cuts with spending reductions, a complex task that will test his political leadership and the country's fiscal limits.