This week on Facing the Future, we discussed the fiscal and economic implications of the November elections with Bill Hoagland and Tom Kahn, who have been through many budget negotiations and leadership transitions in Washington. Hoagland served from 1982 to 2003 as the Republican Senate Budget Committee staff director. He is now senior vice president of the Bipartisan Policy Center. Kahn served as the Democratic House Budget Committee staff director from 1997 to 2016. He now teaches budget policy at American University. Concord Coalition Chief Economist Steve Robinson also joined the conversation.
As a result of the November 5 elections, Republicans will control the White House, Senate, and House of Representatives when President-elect Trump is sworn in on January 20, 2025. In light of that, we discussed with Hoagland and Kahn how major Trump campaign promises might play out on Capitol Hill. These include tax cut extensions, new tax cuts, higher tariffs, and a government efficiency commission.
“I don’t think there is any question that the extension and modifications to the 2017 tax bill will be front and center,” Hoagland said. Many provisions of that bill are scheduled to expire at the end of 2025. Extending these provisions would reduce revenues (and increase deficits) by about $4 trillion over 10 years, according to the Congressional Budget Office.
Republicans are preparing to use budget “reconciliation” to pass tax cut extensions with other yet to be determined priorities included as well. A reconciliation bill would avoid a Senate filibuster by Democrats but there are limits to what can be passed through this special process.
Hoagland said, “I think there’s a different feeling about debt and deficits right now than there was in 2017, because of the size of them and the direction they’re going. It may not be quite as simple to pass a budget resolution, let alone set a budget, that would project rather large deficits into the future.”
Kahn noted, “in addition to extending all of the 2017 tax cuts, Trump wants no tax on Social Security benefits, no tax on tips, no tax on overtime, and expanded deportation. Each of those in and of themselves is phenomenally expensive. So I think it is unlikely that he’s going to get everything he wants. The interesting question is going to be what the Republicans do about offsets. I’m expecting that there will be significant proposals and initiatives to cut a whole range of low-income programs ranging from Medicaid to food stamps, Temporary Assistance for Needy Families, and those will go into a reconciliation bill.”
“If the President-elect’s agenda was fully implemented,” Hoagland said, “I don’t think there’s any question that we’re talking about, a rather stimulative, inflationary oriented set of policies that clearly are being reflected, I think, in the ten-year bond rates” which have been drifting upward.
Kahn added, “You would hope that to some degree maybe the Trump Administration would learn from the stimulative policies of the Biden Administration and its impact on inflation and that they don’t want to repeat history. But ultimately, his initiatives in some form will pass and they will add to the deficit. What we’re talking about is how much more the Trump proposals will add to the deficit and debt. We’re not even beginning a conversation about the baseline and how to reduce that. We’re just simply trying to figure out how to minimize the new harm and I find that really quite discouraging.”
Hoagland pointed out that Congress still needs to complete work on the Fiscal Year 2025 appropriation bills, which are operating under a continuing resolution that expires on December 20, 2024. Just beyond that, the statutory debt limit will come back to life in January 2025 following a period of suspension. “I think we’re going to end up having to deal with the statutory debt limit before we get to the tax bill,” Hoagland said. “Here’s where the trade-offs might come, well before the budget resolution and reconciliation.”
While a debt limit increase could be included in the reconciliation bill, doing so would require Republicans to insert a specific number rather than another suspension.
As Kahn explained, “If they decide to put it in reconciliation, it will make it easier to pass because it only requires Republican votes. But it would mean that there would be a number in it, and Republicans would be voting to raise the debt by a certain amount, and that is not a good place for them to be. On the other hand, if they don’t put it in reconciliation, then it would require 60 votes, and that would give Democrats some leverage. The virtue of the 60 votes, and not putting it in reconciliation, is that there would be some responsibility in both parties to raise the debt ceiling, so it would not be simply a Republican increase. It would have to be bipartisan.”
“Everything in the spring is where I think the real action will take place before we get around to worrying about a tax bill,” Hoagland said.
On the subject of tariffs, one of President-elect Trump’s top priorities, Kahn and Hoagland agreed that Congress will likely allow him a free hand although both had reservations about raising tariffs too high.
Hoagland noted, for example, that raising tariffs on Chinese imports could have a harmful effect on American agriculture. “When these tariffs were established in the previous Trump administration, we ended up providing subsidies to American farmers to offset the impact and the ‘net net’ was to actually increase the Federal deficit,” he recalled.
On tariffs, Kahn said, “economists will tell you quite clearly that they are tax increases, and Congress is not generally inclined to vote to raise taxes, especially if it’s on a partisan basis. And in addition to the inflationary impact of these tariffs, more broadly if the Trump plan were put into effect it would represent a tax increase of about 4 to 5 percent on people in the bottom 20 percent of income, 5 percent tax increase on middle income people, and people at the very top would get a 1 percent tax cut.”
We ended our discussion with a preliminary look at the proposed “Department of Government Efficiency.” Despite the name, this would not be a new department of government, but would be more like a presidential commission.
“There are a lot of uncertainties here,” said Hoagland, “but one thing that was in the President’s statement setting this up was that the Commission’s report must be completed by no later than July 4th, 2026. So those people who are looking for these savings to somehow offset a tax bill are going to have to wait quite a while.”
Kahn observed that, “one person’s waste, fraud, and abuse is another person’s critical services, and so it’s always in the eyes of the beholder. But if this doesn’t have any legislative teeth, it’s really hard to imagine it’s going to take off.”
Hear more on Facing the Future. Concord Coalition Executive Director Bob Bixby hosts the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as The Concord Coalition team discusses issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
