Republicans have a plan to add trillions to the national debt

MUCH AS he may wish to, Donald Trump cannot govern through imperial decree alone. Congress is drafting legislation to remake the tax system and alter federal spending—something only it can do. On May 12th Republicans unveiled their new plan. Unfortunately, it is a mess.

Congressional Republicans need to act for a few reasons. First, many of the tax cuts passed in 2017 under the first Trump administration are due to expire this year. Second, the president made a series of generous campaign pledges that he wishes to see enacted quickly. Third, the spending cuts that Mr Trump has unilaterally made across the federal government are of questionable legality and would be much more defensible if endorsed by Congress. To avoid the filibuster in the Senate, Republicans are seeking to accomplish all three goals in an omnibus bill passed using a procedure called reconciliation (which imposes strict limits on its contents). They would like to get it to the president’s desk by July 4th. The hard deadline is August, when America must raise its debt ceiling or risk a partial default.

In order to do all of this, Republican leaders in Congress seem set to blow out the deficit (which, over the past 12 months, has been 6.9% of GDP). On May 12th the House Ways and Means Committee, which oversees the tax code, released a 389-page draft of its plan. It is stuffed with even more largesse and accounting gimmicks than expected. The expired tax cuts from 2017 are not only going to be extended. Many of them, like the standard deduction and the child tax credit, would become more generous. The Joint Committee on Taxation (JCT), a non-partisan congressional committee, estimates that, relative to the status quo, the bill would add $3.7trn to the national debt in the coming ten years.

Republicans did not just pick one of the many giveaways touted by Mr Trump on the campaign trail; they tried to pack in as many as possible. The bill includes proposals to remove taxes on tipped income, overtime income and even interest on car loans. To meet Mr Trump’s pledge to remove taxes on Social Security income, which is technically barred by the rules of reconciliation, senior citizens will instead be treated to a higher standard deduction. The bill would also create new tax-preferred savings accounts—dubbed “MAGA” accounts—for newborns, which the federal government would seed with $1,000.

Because these ideas are expensive, they are slated to last only until 2028, when Mr Trump’s presidency ends. These new benefits would cost nearly $80bn per year for the rest of Mr Trump’s term. This time limit reduces the bill’s official costs, even though future lawmakers would find the proposals difficult to unwind. Most tax reforms at least aspire to simplifying the tax code. This would make the tax code significantly more kludgy and inefficient, says Marc Goldwein of the Committee for a Responsible Federal Budget. “It’s just kind of a dumpster fire to be honest. I wish I could say nicer things about it.”

These trillions in additional costs are not balanced by measures elsewhere. The grandest cost-savings idea from the Ways and Means committee is to sunset some clean-energy tax credits, which were greatly expanded under Joe Biden. In total, the JCT estimates this would save $559bn over ten years (or 15% of the spending outlined). Other targets in the “Working Families over Elites” section of the bill are not that lucrative: rich universities would pay more tax on their endowment income, peaking at 21% (netting $23bn); certain migrants would face the imposition of an excise tax of 5% on their remittances (providing another $22bn).

Some ideas that Republicans had sounded open to, like increasing the top marginal tax rate and removing the carried-interest loophole, do not appear in the text. Congress could theoretically write Mr Trump’s tariffs into law to make up some revenue. In reality, they will not want to bear the political cost for endorsing them, and they are unlikely to be large enough to fill the yawning budget gap.

The only chance Republicans have of coming close to balancing their budget bill would be through almighty spending cuts. A separate committee has drafted a plan to cut spending by nearly $900bn, principally by reducing expenditures on Medicaid, the health-insurance programme for the poor. Further proposed cuts are expected on food stamps, the nutrition-assistance programme for the poor.

Even though Republicans do not need Democrats to enact these plans, they would need near unanimity among themselves. Some fiscal hawks are crying foul over the deficit spending. But another faction of Republicans in high-cost states are pushing for an increase in the state-and-local-tax (SALT) deduction, which is both expensive and regressive. What’s a hundred billion more among friends, after all? Like so much about the Republican Party of old, its reputation for fiscal discipline and economic management is unwinding. ■