Redburn Reads (May 20, 2025)

Confused by the budget debate? That's what Republicans want.

With a three-seat majority in the House, Republicans are struggling to adopt a tax and spending plan in Congress because they can’t admit their numbers are divorced from reality.

Source: @karolineleavitt/Instagram

To begin with, White House press secretary Karoline Leavitt simply lied about the budget busting legislation, which mostly consists of huge tax cuts for the richest Americans and an effort to offset part of that giveaway with spending cuts on health care for the poorest Americans. By reliable estimates, the package would add roughly another FIVE TRILLION DOLLARS over the next decade to a current national debt of about $37 trillion.

“Is the president OK with this bill adding to the deficit?” a reporter asked.

“This bill does not add to the deficit,” Leavitt responded. “In fact, according to the Council of Economic Advisers, this bill will save $1.6 trillion, and the president absolutely understands and hears the concerns of fiscal conservatives and of Americans who want to get our fiscal house in order.”

(In fact, it’s not a fact, and that number seems to have been pulled out of a hat. And she didn’t bother to explain why the bill, if it doesn’t add to the deficit, includes a provision increasing the debt ceiling by $4 trillion.)

Meanwhile, the so-called “hard-liners” in the House, who occupy safe seat in deep red districts, insist they won’t approve a budget that increases the federal deficit. Good luck with that. There are no politically conceivable spending cuts that could make much of a dent in the $5 trillion, so they are left with demanding even deeper cuts in Medicaid that will only hurt the working class voters that their more vulnerable Republican colleagues need to win re-election. Those dozen or so GOP members are reluctant to sign their political death warrant.

And then there are the handful of so-called SALT warriors from New York, New Jersey and a couple of other high-tax states, who have vowed to oppose any legislation that doesn’t substantially raise the current $10,000 cap on the state-and-local-income-tax deduction. Never mind that only about 10 percent of all taxpayers even bother to itemize their deductions any more – and they are overwhelmingly the richest people in the country.

Why am I bothering to go through these mind-boggling numbers when there are so many other bizarre and threatening things the Trump administration is doing every day? Because if this bill becomes law (and it is very likely that some version will ultimately pass Congress), it will produce irreparable harm for years to come.

It’s easy to get lost in the news coverage of the legislation, in part because it has a hard time conveying just how much dissembling is going on among the various factions involved in the debate. But I’d like to offer some excerpts from the more useful explainers you might not have seen, which are all worth reading further for those of you who want to know more.

You could start with Heather Cox Richardson, who published her take on the bill that emerged from the House Ways and Means Committee on Sunday night in her “Letters From an American” on Substack.

The continuing Republican insistence that spending is out of control does not reflect reality. In fact, discretionary spending has fallen more than 40% in the past 50 years as a percentage of gross domestic product, from 11% to 6.3%. What has driven rising deficits are the George W. Bush and Donald Trump tax cuts, which had added $8 trillion and $1.7 trillion, respectively, to the debt by the end of the 2023 fiscal year.

But rather than permit those tax cuts to expire— or even to roll them back— the Republicans continue to insist Americans are overtaxed. In fact, the U.S. is far below the average of the 37 other nations in the Organization for Economic Cooperation and Development, an intergovernmental forum of democracies with market economies, in its tax levies. According to a report by the Center for American Progress in 2023, if the U.S. taxed at the average OECD level, over ten years it would have an additional $26 trillion in revenue. If the U.S. taxed at the average of European Union nations, it would have an additional $36 trillion.

But instead of considering taxes to address the deficit, in the 2024 campaign, Trump insisted that foreign countries would pay for further tax cuts through tariffs, no matter how often economists said that tariffs are passed on to consumers.

I’m also partial to Matthew Yglesias’ analysis, also on Substack, headlined “Eleven thoughts on a really shitty House budget.”

But Republicans started with a core idea — fully extend the Tax Cut and Jobs Act — that costs a lot of money. And rather than acknowledge that the 2025 macroeconomic situation is different from 2017, and that means it’s hard to do TCJA extension without difficult tradeoffs, they added in a bunch of expensive, gimmicky Trump campaign promises. Then, they wanted to offset the cost of this extremely expensive commitment while minimizing political blowback. So they came up with a mix of just not offsetting it ($3.8 trillion), using gimmicks and not fully counting correctly (an extra $2.4 trillion), and a vicious attack on programs for poor people.

DOGE was a total bust at identifying fraud, Trump is increasing payments to Medicare Advantage ripoffs, and there’s just zero interest in a good-faith effort to wrestle with fiscal problems.

Some provisions of this legislation (like the EV rollback or limiting Medicaid provider taxes) I would find defensible in the context of a package to reduce the budget deficit. But to partially offset the cost of a regressive tax bill that blows a multi-trillion dollar hole in the deficit, while doing absolutely nothing to address the cost of population aging? It stinks! As I’ve said before, lots of right-of-center people have noticed that Trump is sloppy and ignorant when it comes to trade policy, but they should wake up to the fact that it’s not just trade.

Finally, consider the very useful op-ed in the New York Times by Jason Furman, who was a top economic advisor to President Obama, which the Times headlined: Behold the New Tax Plan: More Complicated, Less Fair, Totally Unaffordable.

There was much to dislike in the package of large and regressive tax cuts advanced by President Trump in his first term, but I’ll give it this: By expanding the standard deduction, it simplified the process of figuring out what you owe, and by cutting the corporate rate, it made American businesses more competitive. But why stand on precedent? The latest effort, which I can think of only as tax deform, is a tremendously expensive effort to make the tax code less efficient, less fair and more complicated. Instead of taking this misguided approach, Congress should make permanent the best aspects of that 2017 law — including a larger standard deduction, increased child tax credit and limits on the deductions for mortgages and state and local taxes — and eschew unaffordable rate reductions and new complications to the tax code.. . .

The consequences for ordinary Americans would be severe. The growing debt would drive up interest rates, forcing families to pay more for mortgages and restricting the funds businesses need to invest and grow. The United States would depend more on foreign lending, which would swell our trade deficit. All of this would lead to slower economic growth, which would probably make the tax cuts even more expensive than today’s headlines suggest.

Republicans, of course, aren’t going to listen to a Democratic economist, even a middle-of-the-road Democrat like Furman. And I’m afraid that, one way or another, Trump will manage to corral their fractious assembly into approving this “really shitty” bill.

But someday reality will intrude and, assuming we still have lawmakers operating in something resembling a democracy, Congress will be forced to start dealing with the real fiscal and economic problems facing the United States.

Let me close with just one issue that will soon be unavoidable: the Social Security system, by itself, won’t be able to fully pay the obligations promised to retirees and its other beneficiaries. Auditors estimate that the shortfall could hit as early as 2034.

There are a number of ways that the Congressional Budget Office suggests to help prevent a revolt among the elderly if they suddenly no longer received the benefits they’ve been promised. These include cutting benefits just for high-earning seniors, raising the age when seniors would be eligible for full benefits from the current 67 to 70, or simply pushing the obligations onto the regular budget by allowing income tax revenues to be used to pay Social Security recipients. None of these really solve both the fiscal and the political problem.

My favored solution wouldn’t be popular among Republicans, but it is a lot fairer to most Americans. Currently, the 12.4 percent tax rate on wages (split equally between employers and employees) applies up to incomes of about $176,000, or about 80 percent of the total wage base in the country. I like the idea, proposed by Bernie Sanders and others, of letting the cap gradually rise with inflation, but requiring those with wages above $250,000 to start paying the 12.4 percent tax on their full earnings instead of enjoying a far lower rate than the vast majority of wage earners.

Am I crazy? Politically divorced from reality? Perhaps. But a lot less crazy than what Republicans in Congress are about to do to the voters who elected them.