Budget Reconciliation Bill Is Just ‘First Step,’ Trump Says
This is of critical importance: averting a fiscal-sourced economic disaster will require multiple steps.
“Big First Step Win for Speaker Mike Johnson, and AMERICA. Now let’s start to BALANCE THE BUDGET. IT CAN BE DONE!!!” President Donald Trump wrote in a Truth Social post on Wednesday morning after the House passed its budget reconciliation bill.
Trump’s wording is noteworthy. The president did not praise the bill as an enactment of his economic and fiscal agenda—which is how many people have been portraying it, perhaps in the hope or expectation that it would fail in Congress and put an end to Trump’s annoying efforts to stabilize the national budget.
Instead, Trump tellingly characterizes the bill as a “first step” and requests Congress to “start to balance the budget” (emphasis mine).
That fits perfectly with my previous analyses in which I stated that the president’s plan is to extend the 2017 tax-rate cuts to prevent the economy from tanking in response to what would be a huge increase in the tax rate burden on individuals and businesses. That is the necessary first order of business, to be followed by serious reductions in federal spending.
After that, the next step would be to move toward Trump’s oft-stated ideal: replacement of production taxes by consumption taxes to the extent possible. Taxes on production suppress private investment and vastly reduce economic efficiency by distorting people’s decisions (to reduce their tax liabilities), whereas taxes on consumption encourage saving and thereby increase investment.
It’s clear that Trump and his team would ultimately like to achieve a great reduction in all the burdens the federal government loads onto the people of the United States. That means always implementing the maximum possible reductions in tax rates, regulation, spending, debt, and other disturbances—whatever the reformers can accomplish at any point in time.
The reconciliation bill now goes to the U.S. Senate, where the Republican leadership (if you consider that an accurate way to describe people who are always howling for surrender) has been contemplating a two-bill approach: basically, one to increase spending now and another to extend the 2017 tax-rate cuts later.
That is quite probably a one-bill approach, in which the spending increases get passed and then the Senate majority later tells us they just could not reach a majority on the tax rate extension, oh, well, we tried.
On Tuesday, Trump played nice, telling the press the GOP leaders in both houses of Congress are doing good work.
“So the House has a bill and the Senate has a bill, and I’m looking at them both, and I’ll make decisions,” Trump said. “I know the Senate is doing very well and the House is doing very well. But each one of them has things that I like. So we’ll see if we can come together.”
The choice between the two chambers’ approaches is of historical importance. It will decide whether Trump and his team can proceed with their momentous slate of reforms without having to deal with a brutal recession caused by the time bomb that is the impending expiration of the 2017 tax-rate cuts.
That, in turn, will decide whether the federal government can survive the next few years or falls into a debt spiral that leads to accelerating inflation, skyrocketing interest rates, widespread misery and public disorder, and a probable crisis of legitimacy that could bring down the government altogether.