After a great deal of arm-twisting, the Republican Senate has passed its version of the One Big Beautiful Bill Act. According to the Congressional Budget Office’s estimates, the legislation’s permanent tax cuts combined with spending increases on defense and border security and large cuts to Medicaid and other social spending would add more than $3 trillion to the national debt over the next 10 years, with more red ink in the years and decades after.
A bill that busts the budget might be the right medicine for an under-stimulated economy. But fiscal and economic conditions are radically different from those during President Trump’s first term. Inflation remains a concern, and interest rates are significantly higher than they were in the 2010s or during the pandemic. Already, the annual cost of interest on the debt has soared to levels not seen since the 1990s, and adding trillions more to the debt will only compound an already serious problem.
The bill is strikingly unpopular among voters. Even some Republican lawmakers who voted for the bill have expressed varying degrees of ambivalence or outright hostility.
So why are they behaving in a way that appears to be both politically self-destructive and potentially ruinous for the country?
The answer may be that Republicans aren’t focused on solving a fiscal problem. They’re focused on solving a political problem, one that extends beyond the midterm elections. In doing so, they may be borrowing a page from the playbook of the Reagan-era G.O.P.
America’s fiscal mess is a bipartisan creation. It was during the George W. Bush years that federal tax receipts became consistently insufficient to support the level of spending. But it was during the Joe Biden years that the cost of interest payments on the national debt soared — yet the administration continued to pursue new spending initiatives, even as the economy boomed and inflation took off.
That joint culpability suggests that a solution should also be bipartisan, so those threatened by voter backlash on spending cuts or tax increases can walk the plank together.
But not all planks are created equal. Any negotiation over cutting spending and raising taxes will start from a base line of where spending and taxes are when the negotiations begin.
That’s where the Big Beautiful Bill comes in: The G.O.P. bill isn’t good for the economy, and it’s terrible for America’s fiscal health. But it does reset the base line. Mr. Trump’s first-term tax cuts were structured to expire after a certain number of years to limit their official cost. That’s how President Bush’s tax cuts were structured as well. But when President Obama negotiated with a Republican Congress over their extension, he could demand that the upper-bracket cuts expire on schedule, knowing that if the negotiation failed, the entire package would expire. The Republican bill would make Mr. Trump’s tax cuts permanent, depriving the next Democratic president of that leverage.
Similarly, when Democrats come back into office, they will undoubtedly fight to restore Medicaid and SNAP from the new bill’s cuts. That will take the energy that might otherwise have gone into expanding social spending from its previous base line. And the fight is likely to be happening in the context of a much more dire fiscal situation, where unpopular tax and spending changes will be unavoidable.
At that point, if Democrats need Republicans to walk the plank with them, they’ll have to make concessions elsewhere to earn their support, even as they spend their capital to undo measures that Republicans enacted on their own.
There’s a specific precedent for responding to a looming fiscal crisis by steering into it that may well be on Republicans’ minds. In 1981, when Ronald Reagan assumed the presidency, interest on the national debt as a percentage of gross domestic product had risen to the highest level since World War II. The fiscally sensible response would be to cut spending or raise taxes (or both) to bring the budget into balance. Instead, President Reagan signed the Kemp-Roth tax cuts that deeply lowered rates and ballooned the deficits to levels unprecedented in peacetime.
As debt levels and interest costs exploded, the government was forced to respond. And it did, with tax increases passed in 1982, 1983 and 1984. These tax hikes didn’t fully offset the 1981 cuts, but they were very large. The 1982 tax increase was larger than either the 1990 or 1993 tax hikes that were explicitly intended to address the expanding deficit. Payroll taxes went up, the retirement age went up, loopholes of various kinds were closed — but the headline rates from the 1981 reform remained the same.
And that’s the potential upside for Republicans of making President Trump’s first-term tax cuts permanent: It may force Democrats to join with Republicans to finally address our fiscal situation in a manner more in line with Republican policy priorities. That could include unpopular changes to entitlements that would otherwise be toxic for either party to tackle. It could also include taxes that fall more heavily on working-class people than on the owners of capital.
President Trump’s tariffs could play an important role in setting the base line for negotiations as well. Republicans sometimes proclaim these as a great source of revenue, but in reality even very high tariff rates won’t do much to fill our fiscal hole because trade, while economically crucial, is still only a modest percentage of the American economy (imports of goods totaled approximately 12 percent of our G.D.P. in 2024). Furthermore, higher tariffs would reduce the volume of trade.
But tariffs are a tax on consumption, and higher taxes on consumption are almost certainly going to be part of any serious attempt to solve America’s looming fiscal crisis. Our federal tax revenues are already unusually skewed toward income taxes, which are themselves unusually progressive compared with those of other O.E.C.D. countries. The gap between American tax receipts and the O.E.C.D. average can be almost entirely accounted for by the fact that America doesn’t have a value-added tax.
Under normal circumstances, passing a VAT — a regressive tax on consumption — would be political suicide for either party. But in the context of a fiscal emergency, and with the cost partly offset by cuts to even more regressive tariffs, it just might be a plank that both parties could agree to walk together.
And once again, the Republican bill, precisely by making the crisis worse and by setting a new tax rate base line, may have made such a solution more likely and deliver an ultimate policy outcome more favorable to Republican priorities than responsible policymaking would have.
In effect, Republicans and Democrats are playing a game of fiscal chicken, each side trying to force the other to swerve and accept policy outcomes — tax hikes on higher-income earners and cuts in defense versus entitlement cuts and tax hikes on consumption — that they respectively find anathema. With the Big Beautiful Bill, Republicans have gunned the accelerator.
It’s the kind of move that could persuade the other driver to swerve first. But it’s also liable to get both drivers killed, and the American economy along with it.
Noah Millman (@BloggerGideon) writes the newsletter Gideon’s Substack, is the film and theater critic at Modern Age and is the writer and director of the film “Resentment.”
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