President-elect Trump’s victory has sparked a debate within the Republican Party over the balance between cutting taxes and addressing the growing national deficit, particularly as the GOP looks to take control of both houses of Congress.
With Republicans poised to secure majorities in both chambers, they are eager to pass tax reform aligned with party priorities, including Trump’s proposed extensions of the 2017 tax cuts. This could come at a fiscal cost, estimated at $4.6 trillion by the Congressional Budget Office (CBO).
Trump’s administration has also proposed a wide range of tax cuts, such as eliminating taxes on tips, overtime, and Social Security, offering new deductions for auto loan interest, and even eliminating income taxes. The total cost of these cuts could rise to as much as $15.5 trillion, according to the Committee for a Responsible Federal Budget (CRFB), a group focused on monitoring the national debt.
Rep. Chip Roy cautions against further tax reductions without accompanying spending cuts to prevent deficits
As national debt levels reach historic highs—around 120% of GDP post-pandemic—Republicans are now assessing how far they want to go with further tax cuts. Some worry about the long-term consequences of adding to the deficit.
“A Republican sweep will likely push for $3.5 trillion in deficit-financed tax relief, but it’s not going to happen quickly,” said Todd Metcalf, a tax policy expert at PwC. “There’s a lot of concern over rising debt and deficits, and it’s unclear how that will play out.”
The Trump-backed tax cuts face challenges in the House, where the GOP majority may be slim. Fiscal conservatives within the party, such as Rep. Chip Roy (R-Texas), argue that not all tax cuts pay for themselves and warn that further reductions could be harmful if not offset by spending cuts. “We are already on the left side of the Laffer curve,” Roy remarked, referring to the economic theory that suggests tax cuts may not always lead to increased revenue if taxes are already too low.
This group of fiscal conservatives is at odds with other Republicans eager to double down on Trump’s tax achievements. Senate Minority Leader Mitch McConnell (R-Ky.) defended the 2017 tax reform, claiming it boosted revenue and was a success despite its high cost. “It produced more revenue than it took in,” McConnell noted, signaling that extending the cuts would be a priority for the party.
Speaker Mike Johnson (R-La.) has signaled his support for additional tax measures beyond those proposed in Trump’s 2017 reforms. In September, he expressed interest in a strong child tax credit and business tax breaks, including incentives for research and development and bonus depreciation on capital investments. These ideas have received bipartisan support but were blocked earlier due to disagreements in the Senate.
The proposed tax breaks, worth $78 billion, were partially offset by the cancellation of the employee retention credit, a pandemic-era program that had been marred by fraud. Meanwhile, Trump has focused on tariffs as a potential revenue source, though economists remain skeptical about the effectiveness of tariffs in replacing other tax methods.
Republicans are also exploring ways to roll back tax breaks in the Democrats’ climate-focused Inflation Reduction Act to generate additional revenue. “A broader discussion on taxes is healthy,” said Rep. Adrian Smith (R-Neb.), a key member of the tax-writing Ways and Means Committee. “We haven’t delved enough into Trump’s granular proposals.”
Rep. Jodey Arrington (R-Texas), a prominent Republican on both the Ways and Means and Budget Committees, recognizes the tension between tax cuts and deficit concerns. “The American people are rightly concerned about our unsustainable fiscal trajectory,” Arrington said. “Yet, we also need to take Trump’s proposals seriously, as they address important priorities with constituencies.”
