The writer is an FT contributing editor, chief economist at American Compass and writes the Understanding America newsletter
An arcane budgetary sleight of hand is poised to take central stage in the US debate over tax and spending cuts. Magic tricks can at least entertain, and sometimes even inspire awe. But the budget trick is, in the words of Congressman David Schweikert, oversight chief for the tax-writing House ways and means committee, just “a fraud”.
Most of the tax cuts passed by Republicans during President Donald Trump’s first term, in the Tax Cuts and Jobs Act of 2017 (TCJA), which raised deficits by $1.7tn, are set to expire at the end of 2025. Republicans placed the time bomb in their own legislation to reduce the reported cost of the package — and how much they could be accused of adding to the national debt. The expiry was also necessary to clear the procedural hurdle for “reconciliation”, which allows new budget-related laws to avoid a filibuster in the Senate only if they would do nothing to increase deficits after the first 10 years.
But now the bomb has exploded. Without new legislation, current law requires tax rates to return to their pre-TCJA levels. Maintaining the current policy would cost nearly $5tn in lost revenue over the next 10 years.
Swallowing $1.7tn in new deficits was hard enough in 2017, when the annual budget deficit was $693bn and the federal government spent $269bn to service $15tn of public debt. Increasing them further in 2025, when the annual budget deficit stands at $1.9tn and the federal government is spending $952bn to service more than $30tn of public debt, is insane. Even with the expiry of the TCJA, the Congressional Budget Office expects the deficit to reach $2.1tn by 2030, with interest payments that year exceeding $1.3tn.
What is a fiscal conservative to do? A real one would seek to raise revenue and cut spending, bringing deficits quickly lower and placing the budget on a trajectory towards balance. Suffice to say, that is not the direction the Republican party has chosen.
Fake fiscal conservatives gnash their teeth, rend their garments and then vote for budget-busting tax cuts anyway. At least they acknowledge that they probably cannot afford to extend all the TCJA tax cuts; and that they will need to find trillions of dollars in spending cuts to make the deficit impact more palatable — perhaps a $2tn net cost instead of $4tn-$5tn. As a result, they also know they cannot make the tax cuts permanent, because permanently higher deficits would violate the rules for reconciliation.
Enter, now, the tax cheats. What if, they ask, we just pretend the tax cuts are not supposed to expire? Sure, they expire under “current law”, which is the basis for estimating their cost. But under “current policy” they are in effect. So if we treat current policy as our baseline, extending it and even making it permanent costs zero dollars. Indeed, allowing the tax cuts to expire would represent history’s largest tax rise.
The embarrassing dishonesty of this argument should be self-evident. The only reason Congress finds itself dealing with expiring tax cuts in the first place is that these same tax cheats wanted to use the fact of expiration to make their last cuts appear less costly. The only reason they were allowed to pass the TCJA in 2017 was because under current law it would not affect the deficit in the long term. Keeping the TCJA rates for the long term was never proposed, nor could it have been approved. It is fundamentally undemocratic to whine that the nation might revert from something it was never asked to support. It is fundamentally innumerate to pretend that there is no cost to making the cuts permanent, when the cost of their permanence has never been accounted for.
Accusations of “lying” make the lawyers nervous. So let’s observe simply that when Senate finance committee chair Mike Crapo says: “If you’re not changing the tax code, you’re simply extending current policy — you are not increasing the deficit,” he is far from the truth. Reports indicate that Senate majority leader John Thune and Speaker of the House Mike Johnson, now facing the unkind realities of fiscal responsibilities, are preparing to follow suit. Treasury secretary Scott Bessent has indicated the Trump administration may be on board.
What hold do these tax cuts have on these Republican minds that would lead them not only to misjudge the national interest, but also to debase themselves on so public a stage? Perhaps Shakespeare could answer that question? A policy analyst cannot.
