Trump on collision course with the budget

much has been speculated about the chaos that may (or may not) await the United States and the world after the January 20 inauguration of US President-elect Donald Trump. No one knows to what extent his stated agenda is real and to what extent it is political posturing for his base of supporters, a demonstration of power for his enemies or part of a negotiation strategy with Congress and various foreign friends and adversaries. But despite his bluster and his devotees who want to create alternative realities, Trump cannot cancel the laws of arithmetic, no matter how hard he tries in the coming weeks, when the government reaches the federal debt limit.

The public deficit is the difference between annual income and expenditure, and the national debt is the sum of past deficits. These facts have real political implications, because in the United States the debt cannot grow beyond a certain limit established by law. On December 28, Janet Yellen, outgoing Treasury Secretary, officially announced (https://n.pr/4aeUAtK) that this limit would be reached between January 14 and 23.

Calling for measures extraordinaryBiden can pass the problem on to the incoming administration, as a parting gift for Trump’s (supported by Elon Musk) refusal to uphold an earlier deal, and perhaps Trump can postpone the day of reckoning, but not for long. With a fiscal deficit of 367 billion dollars (https://bit.ly/40s6dKB) for the month of November and an average of 150 billion per month throughout 2024, exceeding the current debt limit will not take long. And the roughly $110 billion added in the Christmas agreement to deal with disasters and emergencies will not make the task any easier. Meanwhile, extremists in the Republican Party insist that the limit not be raised, which would require eliminating the deficit entirely.

If Trump fails to bring all Republicans into line, he will need to rally some Democratic support, through a new deal on the debt limit and future deficits. But why would Democrats accept a debt limit increase, just so Trump can reward the support of Musk and other oligarchs with a massive and unfair tax cut?

And the political tug-of-war in Congress over the deficit and debt is just one horn of the budget trilemma that Trump will face from day one. The second horn is taxation. If Trump and his henchmen are really committed to something, it is lowering taxes on companies and billionaires. His principle The guiding goal is to make permanent the reckless tax cuts enacted by Trump during his first term (which in many cases expire at the end of 2025) and lower taxes on American corporations even further. Most estimates suggest this means adding $7.5 trillion to the national debt, although the Committee for a Responsible Federal Budget’s maximum estimate (https://bit.ly/4hcjSLq) is twice that amount.

Of course, the Trump administration will promise some growth miracle, trotting out the old canard that tax cuts pay for themselves. Never mind that this never happened, not after the 2017 cuts, nor after Ronald Reagan’s in the 1980s. In fact, the tax policies of the first Trump administration are already projected to cost $1.9 trillion (https: //bit.ly/3C5XbcQ) over a period of 10 years. From there, it would take a fiscal wizard (or a level of budgetary dishonesty never seen before) to turn $7.5 trillion into zero.

Which brings us to the third horn of the trilemma: spending cuts. As is well known, most US government spending is not discretionary, but commitments made to programs like Social Security (which even most Republicans are reluctant to cut). In addition, almost half of discretionary spending goes to defense, another budget item that Republicans are very fond of. That leaves only about $750 billion of non-defense discretionary spending, which Trump would need to eliminate completely in order to eliminate the deficit; This includes not only the Department of Education, but also the national parks and homeland security agencies that your government will need to enforce its ruthless anti-immigration policies. Even then, you’ll be left with a trillion-dollar annual hole before you get your tax cut, which becomes mathematically impossible if only a handful of Republican lawmakers keep their promise not to increase the deficit.

At the same time, Trump wants the Europeans to increase their defense spending to 5 percent (https://bit.ly/3Wg9zhr) of GDP. If the United States, which today spends 3.1 percent of GDP on defense (https://bit.ly/3Wg9Bpz), did the same (the opposite would be the height of hypocrisy), it would add 600 billion dollars a year.

Of course, a bipartisan agreement is still possible. That would involve progressive tax reform (in which those who earn more pay more) and provisions that strengthen public programs that have been so important in the lives of millions of Americans. It would not please the falcons of the debt or the oligarchs surrounding Trump, but the super-rich don’t need public programs (or so they think), so why not leave them out of the process?

Judging by Trump’s record, reaching that agreement will not be easy. There will be chaos, as we already saw when the federal administration was about to close (https://bit.ly/4jdOduL) a few days before Christmas. On that occasion, the solution was to postpone the issue until Trump arrived at the White House. But what solution will there be next time?

As we enter a new year, the lives and well-being of hundreds of millions of people will depend on the ease and speed with which this dilemma is resolved. Trump and his supporters may want to disrupt the world order, but they must first put the United States in order, and it is far from clear how they will do that.

Joseph E. Stiglitz, former chief economist at the World Bank and former chairman of the US Presidential Council of Economic Advisers, is a distinguished professor at Columbia University, a Nobel Laureate in Economics, and the author of The Road to Freedom: Economics and the Good Society (WW Norton & Company, Allen Lane, 2024).

Translation: Esteban FlaminiCopyright: Project Syndicate, 2025.www.project-syndicate.org