As we approach Inauguration Day for President-elect Donald Trump, consider this: His second term is going to be different from the first. Yes, he narrowly won the popular vote, but once Republicans actually get down to the business of legislating, they are going to realize that Trump has been dealt a weaker hand this go-round, politically and economically.
In 2016, Donald Trump had a Senate margin of 51-49 and a margin in the House of roughly 235-193, give or take some vacancies. Even with this relatively comfortable margin, House Speaker Paul Ryan, R-Wis., had a hard time managing his caucus, and Republicans were only able to accomplish one major piece of legislation: the debt-financed Tax Cuts and Jobs Act, many provisions of which are set to expire this year.
Credit: Handout
Credit: Handout
In 2025, Trump will face a Senate with a Republican margin of 53-47, so slightly better but certainly not filibusterproof. In the House, Republicans will have only a one-vote margin once Trump’s appointees move to the executive branch.
Republicans were barely able to govern in the last Congress with a four-vote margin; they struggled to elect Mike Johnson of Louisiana as speaker; the House has passed five of the 12 budget bills to fund the federal government for fiscal year 2025 — a fiscal year that began Oct. 1; the Senate hasn’t taken up any. The House barely managed to pass a continuing resolution right before Christmas just to keep the government open for three more months.
Now, right out of the gate, they face an ambitious agenda of authorizing “mass deportations” and border security and reauthorizing the Tax Cut and Jobs Act, which has a price tag of $4.6 trillion.
An agenda like that might be easier if the country were flush with cash, but our staggering debt and deficit are starting to take a toll on our economy. Addressing this is going to require some adult policymaking, which is to say policymaking that is most likely bipartisan (especially given the Republicans’ narrow margins) and that requires politicians to actually say “no” to portions of their base.
In 2016, Trump inherited an economy that was stable if not booming. The national debt was around $20 trillion (with a total-debt-to-gross-domestic-product ratio of 97%). The annual deficit was around $665.7 billion (or 3.5% of the GDP). Not great, but the country’s fiscal situation was such that the debt-financed Tax Cuts and Jobs Act functioned as a stimulus that juiced the economy without much inflation. The national debt went up dramatically, but Republicans got lucky, and, without inflation, the Federal Reserve was able to keep interest rates low.
Today the national debt is $36 trillion (total-debt-to-GDP ratio of 123%). The annual deficit is around $1.8 trillion (6.4% of the GDP). This time, the country had recent serious inflation and, though the Federal Reserve has been guardedly lowering interest rates in the hopes that inflation is now under control, the long-term interest rates that affect mortgages and many other costs continue to rise on the fear of more federal deficit spending.
The country is now spending more on interest payments than on our national defense.
Meanwhile, truly catastrophic economic consequences from our debt and deficit are now on the visible horizon. The Social Security Trust Fund surplus is projected to run out of money by 2035, triggering an estimated 21% across-the-board cut in benefits as automatic circuit breakers kick in to match Social Security expenditures to actual revenue available. Every year of delay makes the situation worse.
Economists have started to project the point at which the financing of our national debt overwhelms our ability to pay and we default on our debt and/or experience hyperinflation. In 2023, the Penn-Wharton budget model projected that we were within a 20-year window of the point of no return, where no amount of spending cuts or tax increases could save us from economic collapse. Again, every year of delay makes the situation worse and more likely.
So what are Republicans planning to do?
At the moment: blow another massive hole in our budget by reauthorizing the unpaid-for $4.6 trillion Tax Cuts and Jobs Act, a number that does not include all the sweeteners and add-ons being proposed by members of Congress and the president-elect. I like a good tax cut as much as the next person, but the situation is sufficiently grave that the Congressional Budget Office is actually projecting the bill without any offsets will have negative dynamic effects — driving up the debt, raising interest rates and causing the economy to contract.
Meanwhile, Trump has said he is going to pay for this bill with tariffs. Don’t worry.
However, even broad and sweeping tariffs in the range of 10% to 20% will not even get close to covering the full cost of the Tax Cuts and Jobs Act reauthorization, much less any add-ons. And let’s just be clear, with tariffs at the scope and scale needed to actually raise serious revenues, the money you and I gain from the tax cuts will go right back out of our bank account to pay for higher prices on goods we purchase that were manufactured in whole or in part overseas.
Economically, tariffs function like tax increases — causing the economy to contract with negative dynamic effects. This is even without considering lost jobs as certain industries struggle or collapse in the face of retaliatory tariffs from other countries. Over time, the economy might adjust, but this country has not experimented with tariffs at this scale since the Smoot-Hawley tariffs helped precipitate the Great Depression in the 1930s.
Various think tanks in Washington are churning out lists of ways to pay for this bill — it can be done — but it’s going to require more than a smidgen of political courage.
So for all those Republicans who talk a good game about the debt and deficit, now is your moment. I’m looking at you, Georgia Reps. Rich McCormick and .Andrew Clyde.
And welcome back, President Trump.
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