“They are drawing the line against tax reform that increases the deficit,” says budget expert Ed Lorenzen, a senior adviser for the Committee for a Responsible Federal Budget.
Translation: Trump, the “king of debt,” won't be able to borrow more money to pay for his tax plan. He'll have to offset the tax cuts by reducing spending.
That puts Trump in a difficult place. The economic advisers from his campaign team are urging him to move fast on tax cuts because businesses and many individuals like them, but spending cuts are painful. Someone loses out on benefits or programs.
The most likely result: Trump's tax cut is going to get smaller.
MAGAnomics was supposed to deliver the “biggest tax cut we've ever had.” The goal is to put more money into the hands of consumers and businesses, prompting more spending and investment to fuel economic growth.
Now, the size of the tax plan is in doubt, and that could hurt chances for hitting the 3 percent (or better) growth level Trump has promised.
So far, the White House has only put out a one-page tax “plan.” It's a list of bullet points, not a detailed proposal. But when Lorenzen's group tried to estimate its budget effects, the analysts said it would cost between $3 trillion and $7 trillion.
That price tag won't fly with House Republicans.
Instead, the tax cut will be about $1 trillion if House Republicans have their way, says Romina Boccia, deputy director for economic studies at the conservative Heritage Foundation.
It's shaping up to be another congressional disappointment for Trump.
“It’s virtually impossible they could lower the top corporate rate to 15 percent. They can’t afford it,” says Greg Valliere, chief global strategist at Horizon Investments and author of a daily politics and markets newsletter. “If they stick to revenue neutrality, the tax cut is going to be far less extensive than Donald Trump wanted — and perhaps the markets wanted, as well.”
The tagline of House Republicans' latest attempt to balance the budget over the next decade without touching Social Security or raising taxes is “a plan for fiscal responsibility.”
“For too long, the federal government's excessive spending has put future generations at risk … Failure to take swift and decisive action is not only inexcusable, it is immoral," House Republicans wrote in a 63-page document accompanying the budget release.
Budget experts applauded the House GOP for doing a far better job at crafting a budget than the fuzzy math from the White House. Lorenzen's group called it a responsible start. Still, there are a lot of controversial cuts, some of which might not even sit well with moderate Republicans.
The GOP budget slashes a lot from welfare, federal employee benefits and even Medicare. And it relies on yearly 2.6 percent economic growth. That's lower than the 3 percent assumption in the White House budget, but it's a lot higher than the 1.9 percent the nonpartisan Congressional Budget Office projects.
It also relies on the repeal of Obamacare passing the Senate.
“They are assuming the passage of the health-care bill. Their timing is somewhat awkward in that respect,” says Alan Viard, a tax and budget expert at the right-leaning American Enterprise Institute. After last night, “they may need to adjust.”
There's a long way to go on the key pillars of MAGAnomics. The future of U.S. health care is hugely uncertain, and tax and budget reform isn't looking any easier to do.
House Republicans know they can't count on votes from Democrats. They plan to use a two-step process to get what they want: First, pass the budget resolution, and then get a tax cut done during the so-called budget reconciliation process. Step 1 is to get the resolution done. That's not a guarantee.
There's a committee vote set for Wednesday on the House budget, but everyone agrees the document released Tuesday is a starting point. Even among Republicans, consensus will be tricky. Moderate Republicans, especially in the Senate, have shown in the health-care debate that they don't want dramatic cuts to Medicaid. The GOP budget calls for about $1.5 trillion in Medicaid cuts over the next decade.
On the flip side, the Freedom Caucus in the House wants deeper spending cuts. The budget released Tuesday assumes that more than $4 trillion in spending reductions happen over the next decade. But in reality, only $203 billion in cuts — a mere 5 percent — would be mandatory. That might not be enough to satisfy the Freedom Caucus.
“To get to a balanced budget — or even a stable debt — we’re going to have to go much further than this budget does. We'll have to take on Medicare and Social Security,” says Lorenzen.