Congressional Republicans are trying to pass a budget this week with a massive tax cut that they say isn’t a tax cut — sleight-of-hand that depends on an arcane accounting device that would make Ponzi schemers blush. The House could vote on the magic math as early as Tuesday; the Republican-majority Senate shamefully gave it a go-ahead early Saturday morning.
Welcome to Washington’s latest act of budgetary smoke and mirrors.
To understand the scheme, you have to go back to 2017, when Congress passed President Trump’s Tax Cut and Jobs Act, which included $2 trillion in tax reductions that mostly benefited the wealthy. To reduce the cost to U.S. coffers, Congress included a “sunset” clause due to kick in at the end of this year. It correctly used a “current law baseline” that showed revenue rising in 2026. Now, Republicans want to switch to a misleading “current policy baseline,” which — presto, change-o — simply assumes the 2026 revenue gains were never in the picture and allows them to say the extended tax cuts are “free.”
This gimmick doesn’t eliminate the cost of the cuts, however; it just hides them. The cost will be real: $4 trillion added to the public debt over 10 years.
The nonpartisan Committee for a Responsible Federal Budget slammed the baseline maneuver as “nihilistic, ahistorical, and inaccurate.” Even some Republicans are reportedly uneasy with the plan, denouncing it as “intellectually fraudulent.” As one wag put it, “It’s like telling your spouse that continuing to pay for your $900-a-month gym membership is free — since you’ve been doing it already.”
The chicanery serves two political goals.
First, it allows Republicans to posture as deficit hawks while blowing a massive hole in the budget. Senate Majority Leader John Thune, for example, has called the national debt a “time bomb,” and House Speaker Mike Johnson says it is the “number one threat to our nation.” If they get away with the baseline switch, they can continue to claim they care about the debt, all the while raising it by trillions of dollars.
Second, erasing the impact of the original cuts and their extension will also enable Republicans to pass even larger tax cuts than budget rules would normally allow.
The timing of all this couldn’t be worse. Our national debt is spiraling out of control, posing a risk to both the economy and national security. This year alone, the budget deficit is projected to reach almost $2 trillion, while total public debt has ballooned to $28.9 trillion. Alarmingly, we spend more on interest payments than on national defense or Medicare, with debt service becoming the fastest-growing expense in the federal budget. As we spend more to service our debt, it’s harder to find dollars for critical initiatives like education and healthcare.
Rising deficits are also bad for consumers. They drive interest rates and inflation higher and reduce economic growth. Because of mounting red ink, the nonpartisan Congressional Budget Office has warned of “significant risks” to the economy, and the International Monetary Fund has called the surge in borrowing “astronomical” and a driver of persistent inflation. Unsurprisingly, mortgage and car loan rates remain elevated, while inflation hovers around 3%. A Yale economist projects that increased debt triggered by this new tax cut will reduce the purchasing power of U.S. households by more than $1,000 after five years. That’s a huge hit to pocketbooks in addition to the one that the president’s just announced as a result of the import tariffs he’s imposing.
This reckless approach to budgeting also heightens America’s vulnerability to foreign adversaries like China, which holds a significant investment in U.S. debt. Should China decide to offload its U.S. debt holdings, the consequences would harm our economy leading to higher interest rates, a weakened dollar and more surging inflation. Do we really want to hand that kind of economic leverage to unfriendly nations?
It’s important to acknowledge that both political parties share responsibility for our escalating debt. The initial Trump administration increased it by nearly $8 trillion, fueled both by the $2-trillion tax cut and more than $3 trillion in emergency COVID relief measures. President Biden added $4.7 trillion to the debt, driven in part by the $1.9-trillion American Rescue Plan. Instead of reversing course on mounting red ink, Republicans plan to pour gasoline on the fiscal fire.
Why isn’t there more public outcry over the debt? Ironically, as our budget deficits have climbed, national concern and the political will to shrink them have shrunk, especially among many Republicans. In 1997 when I started work at the House Budget Committee, the nation was sufficiently worried about a projected annual deficit of $200 billion that Congress felt compelled to negotiate a multiyear reduction package that led to four years of balanced budgets. Today, the Congressional Budget Office projects annual budget deficits approaching $2 trillion as far as the eye can see, and America shrugs.
This is a moment of truth. Voters should demand that congressional Republicans, and the president, let the sunset clause take effect on the 2017 cuts and abandon the fantasy that extending them carries no costs. Instead, both political parties should negotiate a serious, bipartisan deficit-reduction plan with both spending cuts and revenue increases. The only responsible path forward for America is to cut deficits — not raise them under the cover of a deception.
Thomas Kahn is a distinguished faculty fellow at American University. He served as the Democratic staff director and chief counsel for the House Budget Committee from 1997 to 2016.