From our Budget Breakdown series highlighting problems in fiscal policy to inform the 2025 tax and budget debate.
Congressional Republicans last week took a major step in advancing their legislative priorities last week when the House Budget Committee passed a budget resolution that enables them to make deep reductions in both taxes and spending within one filibuster-proof reconciliation bill. But despite winning Trump’s endorsement over a competing Senate alternative, division has already emerged over the severity of the resolution’s spending cuts. This debate has revealed an uncomfortable truth for Republicans: that tax cuts come with a cost, whether or not they are transparent about those costs.
The House budget resolution originally specified $1.5 trillion in cuts to mandatory spending that the relevant Congressional committees would be required to put in a subsequent reconciliation bill. But to win support from right-wing hardliners in their caucus, House Republican leadership added an amendment to their resolution that set a $2 trillion target for mandatory spending cuts without specifying from where the additional cuts would come. In addition, if Republicans fail to reach this new target, the $4.5 trillion allowance they gave the Ways and Means Committee to pass deficit-financed tax cuts would now be reduced by the same amount by which they missed the new target. In other words, if Republicans want to proceed with their plans to pass a massive tax cut, they’ll need to at least partially pay for it through additional spending cuts.
Many Republicans are simply not comfortable with what it takes to cut $2 trillion from mandatory spending. President Trump has removed many of the biggest mandatory spending programs — including Medicare, Social Security, and veterans’ benefits — from consideration, leaving less than one third of all mandatory spending available for Republicans to target. As a result, nearly all the $1.5 trillion in cuts that the budget resolution identifies are likely to come from vital safety net programs that benefit millions of Americans. Roughly 60% of the cuts specified in the budget resolution could come from Medicaid, a popular program that offers health insurance to roughly a fifth of the nation. Another 22% could come from federal nutrition programs, such as the Supplemental Nutrition Assistance Program, which provides food assistance to 42 million low-income Americans.
And even these cuts — which are $500 billion short of the target — have already run into political difficulties. Several “moderate” Republicans whose districts rely heavily on Medicaid have so far declined to support the resolution out of concerns that the cuts would hit their constituents. With the GOP’s slim House majority, even a few defections could prove fatal for the budget resolution’s chances.
But while they squabble over these spending cuts, neither moderate nor right-wing Republicans are truly willing to confront the deeper tradeoffs needed to reconcile their bill with fiscal realities. Although the resolution now targets $2 trillion in spending cuts, it still adds a whopping $4.8 trillion in new obligations — split between $4.5 trillion in tax cuts and $300 billion in new spending. Whether Republicans are willing to admit it, America will eventually have to pay for the costs of these budget-busting proposals in their entirety.
Enacting huge deficit-financed tax cuts means there is simply less revenue available to sustain the same level of government spending. To correct this deficit, future Americans will be forced to choose between raising their taxes or making even deeper cuts to critical programs. If they opted against raising taxes, the resulting cuts would go far beyond the cuts currently being debated. For example, the current budget resolution contains up to $880 billion in potential Medicaid cuts, which would be a roughly 11% decrease in spending over ten years compared to baseline funding. But to make up for the full cost of what their budget resolution would add to the deficit, Republicans would need to cut Medicaid by 45% instead — nearly half the program’s spending.
That Republicans don’t specify today what Americans will have to forego to pay for tax cuts doesn’t make those trade-offs any less real. Ultimately, the fight about offsets playing out between different factions of the GOP in Congress is not about how much spending must be cut to make their priorities work with fiscal reality. Rather, it’s simply a fight over how much of those cuts to be honest about.
Programs including Social Security, Medicare, Medicaid, and SNAP that are able to distribute funding without being subject to the annual appropriations process are considered “mandatory spending.” In 2024, mandatory spending totaled roughly $4.1 trillion, or about 60% of all federal spending.
