President Trump inherited a mess, but he’s taking the right steps to get America back on track.
Just how bad is it? The Federal Reserve Bank of Atlanta’s “GDPNow” forecasting model suggests that the U.S. economy is presently contracting at an annual rate of 2.4%. Worse yet, the economic outlook for the remainder of 2025 and beyond is dubious at best.
If Congress needed a reason to extend and expand President Donald Trump’s Tax Cuts and Jobs Act (TCJA), this is it!
Certain congressmen are hesitant to extend TCJA without enacting similarly large federal spending cuts. They are rightfully concerned about the budget deficit. But allowing the tax cuts to expire and, in doing so, possibly nudging the U.S. into recession, is the surest way to balloon the deficit further and saddle taxpayers with even more debt.
Fiscal prudence demands that the 119th Congress enact tax policies designed to grow the economy. And the sooner, the better.
An analysis prepared earlier this year by EY on behalf of the National Association of Manufacturers “estimates that the expiration of these [TCJA] policies could put 5.9 million U.S. jobs, $540 billion of US employee compensation and $1.1 trillion of US GDP at risk.”
In short, this is no time for a tax increase.
Moreover, the uncertainty surrounding the future of U.S. tax policy is bound to put a damper on business investment and economic growth. Ending that uncertainty will help businesses plan for, and invest in, America’s future.
Note to Congress: Don’t dither!
Nonetheless, the federal budget deficit remains a huge problem.
On March 9, 2020, two days before the World Health Organization declared a global pandemic, the gross federal debt totaled $23.5 trillion. Today, in the aftermath of the pandemic and four years of President Joe Biden’s profligacy, the gross federal debt totals $36.2 trillion—a stunning 54% increase. Furthermore, the Congressional Budget Office (CBO) anticipates the federal debt will grow by more than $20 trillion over the coming decade.
The projected run-up in the federal debt is unsustainable. In October 2023, the University of Pennsylvania’s Wharton School issued a report on possible scenarios for U.S. fiscal policy. Its best-case scenario concluded, “Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation).”
Again, just to be clear, that’s the “best case” scenario.
How can Congress avert a recession while weaning the federal government from its addiction to massive budget deficits? The answer is simple, but not particularly easy to implement. Congress can grow the economy and tackle the deficit by pairing an extension and refinement of TCJA with concrete measures to restrain federal spending growth.
Trump’s effort, via the Department of Government Efficiency (DOGE), to quash questionable federal spending and the federal bureaucrats overseeing that spending is a great and necessary start.
History is on Trump’s side. Federal employment (excluding the Postal Service) fell by 434,000 or 18.8% from 1993 to 2000. Based on estimates provided by the Economic Policy Innovation Center (EPIC), if Trump replicates that achievement by cutting federal employment by 18.8%, taxpayers would save more than $1 trillion in federal salaries and health benefits over the decade.
The DOGE’s spending cuts are long overdue, but they are insufficient to fix what ails the federal budget. The fiscal problem Trump inherited is simply too large.
Trump need not balance the federal budget, but he should seek to stabilize (and ultimately reduce) the federal debt-to-GDP ratio. To achieve that outcome, the president and Congress will need to enact policies to grow the economy faster than federal spending.
Stabilizing the federal debt-to-GDP ratio will require combining DOGE’s efforts and policies to grow the economy with congressional legislation to tackle fraud and inefficiencies in essential programs (e.g., Medicaid).
EPIC estimates, for example, that the federal government issued nearly $1.1 trillion in improper Medicaid payments over the past decade. The mainstream media will describe congressional efforts to reduce fraud and inefficiency as “cutting Medicaid,” but that’s a lie designed to elicit a political backlash.
Trump inherited a fiscal mess and a tepid economy. Fortunately, Trump knows what needs to be done. More importantly, he’s doing it.
James Carter is a Principal with Navigators Global. He previously headed President Donald Trump’s tax team during the 2016-17 transition and served as a deputy assistant secretary of the Treasury. Jim Ellis is the founder of the Ellis Insight election analysis service.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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