The next president's $4 trillion problem
Whoever is in the White House in 2025 will quickly face a series of legislative deadlines with impossible price tags: $3.6 trillion in tax cuts and $350 billion in Affordable Care Act subsidies are expiring — and that's after the debt limit will need to be addressed again.
Why it matters: The deadlines could force political horse-trading of epic proportions. Alternatively, gridlock or alarm over the nation's debt may lead to Americans seeing higher taxes and fewer benefits.
The big picture: Republicans' 2017 tax law and the enhanced ACA subsidies that Democrats first passed in 2021 are signature policy accomplishments for each party. They're also both extremely polarizing, and became law under party-line votes.
- In the past, the coinciding expiration dates may have been fodder for a grand bargain in which both sides etched out wins — and still could be.
- But the recent debt limit fight showed how even a crisis can barely force Democrats and Republicans to agree in today's political environment.
- And the 2024 election could very well be a rematch between the same two presidents who signed each measure into law.
- “We’re in a time period in the country where we're just so deeply polarized, and compromise or actually legislating is not rewarded," said Chris Campbell, a longtime aide to former Sen. Orrin Hatch.
- “When I was up there, I could have easily mapped out how this would happen…now it's really uncertain," he added. "It really will depend on who the president is and it will depend on the margin of either the House or Senate.”
Between the lines: Even one-party control of Congress and the White House wouldn't necessarily make the process headache-free.
- The nation's debt level will only rise over the next two years, forcing Republicans to choose between essentially raising taxes and dropping another $3.6 trillion onto the balance sheet, according to an analysis by the Committee for a Responsible Federal Budget.
- "I think there will be a faction of the Republican party who would not want to go into a debate, even with significant tax cuts, if it would blow a hole" in the deficit," Campbell said.
And while most Democrats would happily extend the ACA subsidies, and nearly all of them have criticized the Trump tax cuts as handouts to the wealthy, allowing taxes to rise may be a tough political sell — especially as the party increasingly represents wealthier parts of the country.
- "It could potentially be a really good deal for Democrats if they were to agree to extend the tax cuts and extend the ACA subsidies. Then they don’t get blamed for raising people's taxes and they get the subsidies," former House Budget Committee Chairman John Yarmuth, a Democrat, told Axios.
Yes, but: Budget hawks warn that the nation's finances are on a disastrous path, and letting at least some of these policies expire or finding a way to pay for extensions would be the responsible course of action.
- There are also scenarios where political horse-trading could even increase the cost of a deal — like if the limit on the state and local tax deduction is eliminated or if Democrats successfully demand more of their preferred policies to more closely match the cost of extending the tax cuts.
- Passing legislation that could be north of $4 trillion is "ridiculous when you already have debt that’s headed to record levels," said Marc Goldwein, senior vice president and senior policy director at the CFRB.
What we're watching: One of the simplest ways to bring down the price tag of any of this would be to just pass temporary extensions.
- "I can’t imagine that any Congress is going to pass a bill that costs $4 trillion," Yarmuth said. "My guess is if they did something, it would be a much shorter duration."
- But limiting the price tag by extending the measures for only a couple of years is "a horrible way to do tax policy," Goldwein said.
- “There are other ways to have a deal that would be fairer to both sides that don’t involve sticking the bill to our grandkids," he added.