The Trump 2.0 economy is starting to come into focus. Three key factors paint a picture of where he intends to go.
They are: (1) Trump’s pick for Treasury secretary, Scott Bessent, is a deficit hawk. (2) A key Trump legislative priority is extending, even expanding, his tax cuts. (3) Trump recruited Elon Musk and Vivek Ramaswamy, both tech billionaires, to come up with spending cuts.
A “deficit hawk” is someone who wants to reduce or eliminate budget deficits. It’s fiercely debated whether deficits matter. At some point they do, but there’s no bond market crisis yet. Still, Wall Street, where Bessent hails from (he’s a hedge fund manager), applauded his selection. But what does it mean for the rest of us? It’s complicated.
Let’s start here: To reduce deficits, you have to raise taxes, cut spending, or both.
A strong case can be made for reducing deficits. But it’s nearly impossible without raising taxes because an aging population will put more demands on Social Security and Medicare in coming years. Also, higher interest rates means the Treasury is paying more interest on its debt.
Because tax cuts that primarily benefitted rich people contributed to expanded deficits, the most logical and fairest way to reduce deficits is to restore the previous status quo by letting those tax cuts expire. But Trump won’t hear of it.
Republicans often claim tax cuts stimulate the economy enough to increase federal revenue. But the Reagan, Bush, and Trump tax cuts all resulted in higher deficits. I doubt Bessent believes in this “voodoo economics.” More likely, like Trump and Musk, he’s thinking about pairing Trump’s tax cuts with gargantuan spending cuts.
Before I go into that, experts say tariffs won’t come close to replacing the lost revenue from tax cuts. And tariffs raise prices for consumers; in effect, they’re a hidden sales tax. Thus, the tariff part of Trump’s fiscal plans represents a shift from taxing income to taxing consumption. This results in people lower on the income scale shouldering more of the tax burden.
But without spending cuts, Trump’s tariff and tax cut schemes will increase deficits. He knows this, otherwise he wouldn’t have tasked Musk and Ramaswamy with finding spending cuts.
How much in spending cuts do they have to find? Trump’s tax cuts are expected to cost $7.75 trillion over 10 years. Let’s average that to $775 billion a year. That’s how much you have to cut spending just to pay for his tax cuts, before you get any deficit reduction.
Musk claims he can cut spending by $2 trillion. This graphic shows the current federal budget, which has outlays of $6.1 trillion and revenues of $4.4 trillion, resulting in a deficit of $1.7 trillion. To totally eliminate deficits after Trump’s tax cuts, you’d have to cut expenses by $2.475 trillion, less whatever tariffs bring in.
Social Security, Medicare, debt interest, and defense add up to $3.86 trillion. If you don’t cut those, that leaves $2.24 trillion of spending on everything else: Federal employee salaries, civilian and military retirement benefits, veterans health care, Medicaid (which pays for health care for the poor, and elderly in nursing homes), food stamps and child nutrition programs, unemployment benefits, agricultural subsidies, NASA (from which Musk gets billions in contracts for his space company), national parks, managing federal lands, FEMA, and a vast array of other activities.
It’s obvious where the budget cutters will go first. Health care is the low-hanging fruit. Republicans don’t believe you have a right to health care. They see health care as a privilege earned by those who’ve been successful in life. The federal government pays for half of all U.S. health care, and they would want to eliminate it regardless of the impact on deficits.
Of course, other programs they don’t like wouldn’t be spared, either. Every thread of the social safety net will be targeted. It’s simple: Republicans want to impose their Social Darwinist philosophy on the American people by shredding the social safety net.
Making speeches about the dire need to reduce deficits while cutting taxes for the rich is the same old wolf in the same old sheep’s clothing. The ultimate goal is a society drawn from a Charles Dickens novel. Where other Republican administrations have failed, Trump thinks he can succeed. He’s going to try.