Just about everyone in Washington has free advice for the next presidential administration and Congress. National Taxpayers Union (NTU) has seen it all before, and we know what it will really take to do a good job for taxpayers: focus on several key priorities, early unity and cooperation, and persistence in the face of criticism from entrenched bureaucratic interests.
Inflation is crushing the American people. The national debt has skyrocketed 75% since 2017, now adding up to an eye-popping $35.94 trillion, a burden of $272,821 per taxpayer. The threat of new tariffs on imports, along with failure to get federal spending under control, could make the problem worse.
The electorate voted with their wallets and President-elect Trump and the new Congress must start working together now to tackle these enormous problems.
3 Not-So-Easy but Necessary Steps
1. Key portions of the Tax Cuts and Jobs Act (TCJA) should be extended and strengthened as quickly as possible to prevent a big middle class tax hike. Republicans will need to use a procedure called budget reconciliation to get past a Senate filibuster. This process needs to begin right after the next Congress is sworn in if lawmakers intend to meet an advertised target of getting reconciliation finished by April 2025.
Even if reconciliation is successful, Republicans will still need to resolve the divisions in their caucus about issues like the state and local tax deduction (SALT) and the Child Tax Credit. Then there are President-elect Donald Trump’s proposals to end taxes on tips, Social Security benefits, car loan interest, and more, which have revenue impacts of at least $6.7 trillion over 10 years.
These campaign promises will likely need to be modified to reflect fiscal reality. For example, instead of exempting Social Security benefits from taxation entirely, which would worsen the program’s shaky finances, Congress could enact a law that would adjust the taxable threshold for Social Security for inflation each year. Similarly, it would be far easier to increase the standard deduction than it would be to task the IRS with developing a new system for exempting tips from income reporting. Trump’s promise to end the double-taxation of Americans living abroad could be fulfilled with impacts on the federal budget that range from modest to zero. For example, a recent plan from Tax Fairness for Americans Abroad could be fashioned into legislation early in the next Congress.
Speaking of the IRS, Congress and the White House need to agree on a strategy that will improve customer service and modernize technology at the tax agency. The Inflation Reduction Act threw tens of billions in funding to the IRS for “enforcement,” when the goal should be restoring the word “Service” in “Internal Revenue Service.” That will boost respect and compliance from Americans without giving the IRS a bigger license to bully innocent taxpayers.
2. The idea of tariff increases should be seriously reconsidered. Continuing the trade war with other countries, on which the Biden administration doubled down, would be a mistake. It only invited retaliation and raised costs for Americans, who suffered the collateral damage. “Tarifflation” is not the right way for Trump to start his second term. A better idea is to work toward zero tariffs, zero subsidies, and zero trade barriers, which Trump has articulated in the past.
3. Keeping inflation from roaring back also relies on reducing federal spending. Like the Grace Commission from 1982, the new “department” headed by Elon Musk and Vivek Ramaswamy could focus on the problems of wasteful and low-priority spending. One way to avoid roadblocks to implementation in the Executive Branch and Congress would be pairing this entity with Fiscal Commission legislation in Congress, and then give the whole process real teeth. That would result in a one-two punch against wasteful spending. Trump should, to the fullest extent possible, begin enlisting outside experts for the Musk-Ramaswamy initiative so that it can make progress on Day One of the Trump Administration.
Other inflation reduction priorities include increasing energy and housing supplies rather than implementing more government subsidies or price controls. This all starts with regulatory reforms. Close to one-fourth of the cost of building a new home consists of taxes and regulations, while a recent op-ed from business leader Larry Fink noted, “Reform of the permit process would let the country build energy infrastructure at more than a snail’s pace. Today, permitting for the average U.S. infrastructure project takes longer than building it.”
Between 2019 and 2020, federal spending zoomed from $4.45 trillion to $6.55 trillion. The budget barely pulled back by 2023, when it was $6.13 trillion. Now it's headed north again, projected to blow past $7.25 trillion in 2025. Meanwhile, the national debt continues to grow. A combination of smart tax and regulatory reform with aggressive cost cutting is necessary to get our nation’s finances back on track.
Keep spending modest in 2024
Taxpayers should insist on a modest bill for federal funding past the December 20 deadline of the current Continuing Resolution, so that the next Congress can get to work quickly on bringing the budget back to earth.
Senate Majority Leader Chuck Schumer, who will lose the power to run the Senate when Republicans take over in 2025, will likely use any lame duck session in the next several weeks to ram through a large omnibus spending bill. Fortunately, for his part, House Speaker Mike Johnson (R-LA) has opposed an omnibus. Congress should also get an early start on spending reduction by reaching consensus on tightening the spending caps originally crafted under the Fiscal Responsibility Act. Opportunities to pass other pro-taxpayer bills in this Congress, including PBM reform and the College Costs Reduction Act, should not be overlooked. At the same time, congressional tax-writers and others on economic policy committees should call on federal executive branch entities to pause major regulations until 2025. The rush to complete new rules, which could be subject to court challenges or end up under the Congressional Review Act, will lead to wasted time and energy that could be put toward the taxpayer priorities listed above.
Getting fiscal policy right for taxpayers will take a great deal of concerted effort, and it has to begin now. America’s future is at stake.