DONALD TRUMP’s lead over Joe Biden can largely be explained by voter unhappiness with the economy — specifically, concerns over high interest rates and inflation. Both are likely to get much worse if Trump becomes president.
House Speaker Mike Johnson confirmed last week that he is working on a budget reconciliation bill that would include — but not be limited to — a full extension of the 2017 Tax Cuts and Jobs Act, whose tax cuts are set to expire in 2025. The Joint Committee on Taxation reported last week that the cost of extending those cuts is now 50% higher, in nominal dollar terms, than it originally estimated. Meanwhile, over in the Senate, Republican Roger Wicker and Minority Leader Mitch McConnell are working on a plan to hike defense spending to 5% of GDP.
All told, this amounts to more than $10 trillion in additional borrowing for military spending and tax cuts alone. Brian Riedl, a fiscal policy analyst at the conservative Manhattan Institute who favors increased defense spending, calls this combination of priorities “completely detached from reality.”
And yet the reality is that these are the stated goals of the people who will control the agenda next year if Republicans win in November.
Granted, there has been a lot going on. But the tenor of the campaign continues to be oddly detached from this question of how the opposition party intends to govern. The general sense among some of those unhappy with Biden is that things haven’t gone as well as hoped over the past four years, so why not elect Trump to bring us back to the America of, say, late 2019.
But however you apportion the blame for what happened over the next few years — just to jog your memory, events included a major global pandemic, trillions in economic relief spending, the Russian invasion of Ukraine, and Iranian-backed militias disrupting Red Sea shipping, over and above anything that Biden did — Trump is not a magician, and he can’t turn back the clock. When Biden took over as president in 2021, he had to deal with the situation he was left by his predecessor. If Trump wins, he will have to do the same.
In 2017, he took over an economy that, despite years of steady growth under Barack Obama, remained somewhat depressed. Prime-age labor force participation was well below its peak, interest rates were near zero and had been for a long time, and inflation was quiescent. Trump took advantage of that opportunity to unleash an agenda of macroeconomic populism — tax cuts and increased military spending and increased domestic spending, with unpopular entitlement reform off the table. Inflation and interest rates did rise in response, but only a little and nobody minded much at the time, because the economy still had plenty of slack.
None of these conditions prevails today. Love Biden or hate him, the unemployment rate is very low, the employment-population ratio is fully recovered, and immigration has boosted the size of the labor force above pre-pandemic estimates. Adding more stimulus will be steeply inflationary unless offset by dramatic cuts elsewhere in federal spending.
Will that happen? It’s certainly possible. A Republican reconciliation bill would seek to repeal all or most of the clean-energy spending from the Inflation Reduction Act (IRA). At the same time, Republicans are also committed to repealing the IRA’s spending on tax enforcement and its provisions on prescription drug pricing, both of which will make the deficit higher. The law was deliberately constructed to slightly reduce both the deficit and inflation, so it’s hard to balance the books by repealing it.
Trump has sworn off cuts to Medicare and Social Security, the federal government’s two largest programs. So he’s left with Medicaid, which provides healthcare to the poor and long-term care for the elderly and disabled. Last time Trump was in office, his administration sought large cuts to Medicaid as part of Affordable Care Act repeal. This time around, Republicans are being remarkably cagey. In an interview with Semafor, Johnson said that plans for legislation were fluid but that there’s “a lot of innovation and change that is desperately needed” in healthcare.
It’s hard to disagree with a nonspecific call for “innovation and change.” It’s also hard to see it as an adequate answer for how Republicans are planning to govern the country.
To be fair, there are no feel-good answers to the question of how to address the budget deficit amid rising international tensions and an aging population. But a gigantic tax cut is not going to help, and pairing it with an aggressive effort to deport a large share of the workforce while cutting off an ongoing flow of workers is only going to exacerbate the basic problems with MAGA-nomics.
If Republicans have an actual plan to make this math work with offsetting cuts elsewhere, people deserve to know what it is. And if, as seems more likely, they plan to repeat the formula from Trump’s first term of just putting it all on the national credit card, voters deserve to know that, too, and ought to think about its implications.
Lax fiscal policy worked just fine for Trump during his previous stint in office. But circumstances have changed, and re-running that play — as he is currently promising to do — risks genuine fiscal catastrophe.
BLOOMBERG OPINION
