Is Trump capable of resolving the national debt? Numerous Republican senators, investors, and Elon Musk express skepticism.
Trump's Dilemma: Selling a Multitrillion-Dollar Tax Break Amid Debt Concerns
President Donald Trump is in a pickle. He needs to convince Republican senators, global investors, voters, and even tech mogul Elon Musk that his multitrillion-dollar tax breaks package won't bury the federal government in debt. Yet, the initial response from financial markets is skeptical, given Trump's inability to trim deficits as promised.
"All of this rhetoric about cutting trillions of dollars of spending has come to nothing," remarks Michael Strain, director of economic policy studies at the American Enterprise Institute. "There is a level of concern about the competence of Congress and this administration, and that makes adding a whole bunch of money to the deficit riskier."
The White House, unsurprisingly, has been quick to criticize those expressing concerns over rising debt. However, it's a concern that’s justified, given that the President's tax cuts strategy in his first term led to an increase in the national debt.
House Speaker Mike Johnson echoes the criticism of Congress's number crunchers, stating that the CBO often underestimates economic growth brought about by tax cuts and reduction in regulations. Despite this, Trump himself has admitted that the lack of sufficient spending cuts to offset the tax reductions stemmed from the need to hold the Republican congressional coalition together.
Most economists consider the non-partisan CBO to be the foundational standard for assessing policies, though it does not produce cost estimates for actions taken by the executive branch like Trump's unilateral tariffs. Elon Musk, a former member of Trump's inner circle, expressed disappointment over the massive spending bill that has increased the budget deficit.
The National Debt Keeps Climbing
The tax and spending cuts that passed the House last month, if left in place, could add over $5 trillion to the national debt in the coming decade, according to the Committee for a Responsible Federal Budget, a fiscal watchdog group. To keep the bill's price tag appear lower, various parts of the legislation are set to expire, a tactic similar to Trump's 2017 tax cuts.
The debt is a much bigger issue now than it was eight years ago. Investors are demanding that the government pay a higher premium to keep borrowing as the total debt has crossed $36.1 trillion. The interest rate on a 10-year Treasury Note is around 4.5%, up significantly from the roughly 2.5% rate when the 2017 tax cuts became law.
The White House Council of Economic Advisers argues that its policies will unleash rapid growth that will shrink the annual budget deficits in relation to the overall economy, making the US government fiscally sustainable. But most outside economists argue that additional debt would keep interest rates higher and slow overall economic growth.
The inability of the administration to quell deficit concerns has stirred political blowback for Trump as the tax and spending cuts move to the Senate. Republican senators Ron Johnson of Wisconsin and Rand Paul of Kentucky have expressed concerns over likely deficit increases, with Johnson stating that there are enough senators to stall the bill until deficits are addressed.
The Economic Uncertainty Continues
Despite Trump's claims, many disagree that growth alone can accomplish deficit reduction. Adding to the problem is the tax cuts in the bill set to expire in 2028, creating a dilemma for lawmakers who would have to deal with Social Security, Medicare, and expiring tax cuts all at once in the near future.
"This just adds to the problem future policymakers are going to face," said Brendan Duke, a former Biden administration aide now at the Center on Budget and Policy Priorities. "These are mostly not growth- and competitiveness-oriented tax cuts. And, in fact, the higher long-term interest rates will go, the other way, and hurt growth."
- The government's strategy, led by President Trump, to offer multitrillion-dollar tax breaks is facing skepticism, as it may escalate the federal government's debt.
- The White House, in response to concerns regarding rising debt, has criticized those expressing skepticism, though these concerns are justified given the President's tax cuts strategy in his first term increased the national debt.
- The tax and spending cuts, if left unchanged, could add over $5 trillion to the national debt in the coming decade, according to the Committee for a Responsible Federal Budget.
- Investors are demanding higher premiums from the government for borrowing due to the growing national debt, which has surpassed $36.1 trillion.
- The debate over Trump's tax and spending cuts has stirred political blowback, with Republican senators like Ron Johnson of Wisconsin and Rand Paul of Kentucky expressing concerns over likely deficit increases.
- The economic uncertainties continue, as many disagree that growth alone can accomplish deficit reduction and the expiring tax cuts in 2028 create a dilemma for lawmakers dealing with Social Security, Medicare, and expiring tax cuts all at once.
- Elon Musk, a former member of Trump's inner circle, expressed disappointment over the massive spending bill that has increased the budget deficit, contributing to the general news about the economy and politics.
