The Blubber

Extending the 2017 Tax Cuts and Jobs Act (TCJA), which is set to expire, would reduce federal tax revenue by an estimated $4.5 trillion between 2025 and 2034. Over the long term, GDP would increase by about 1.1%, offsetting approximately $710 billion—or 16%—of the lost revenue. However, Gross National Product (GNP), a better measure of American income, would only rise by 0.4%, since a portion of the gains would go to foreign investors through increased interest payments on the national debt.

President Donald Trump has called for the TCJA to be made permanent and has also proposed additional tax relief measures, such as eliminating taxes on tips, overtime pay, and Social Security benefits for retirees. He’s also advocating for a new deduction on interest paid for auto loans on American-made cars. At the same time, he plans to raise taxes on imports through a broad new round of tariffs.

Lawmakers plan to use the budget reconciliation process to advance the tax cuts. Reconciliation is a legislative tool that bypasses the Senate filibuster and allows for expedited passage of tax, spending, and debt limit legislation in accordance with a budget resolution that includes targets or caps for changes in the federal deficit.

On February 21, 2025, the Senate approved a budget resolution to begin the reconciliation process, but it does not allow for any tax cuts.

On February 25, the House passed its own budget resolution allowing for tax cuts that increase the deficit by up to $4.5 trillion over the next decade—provided that spending is cut by $1.7 trillion. If the spending cuts fall short of that mark, the allowable tax cuts are reduced dollar-for-dollar; if spending cuts exceed $1.7 trillion, the limit on tax cuts can increase by the same amount.

Then on April 2, the Senate released a revised budget resolution offering new instructions to committees. It adopts the House's approach for House committees and allows the Senate Finance Committee to reduce revenue by up to $1.5 trillion over ten years, based on a current policy baseline that already includes $3.8 trillion in tax cuts. Although that $3.8 trillion isn’t officially counted as a deficit increase under this baseline, it effectively authorizes up to $5.3 trillion in tax reductions financed through borrowing.

The resolution also gives the Senate Budget Committee Chair authority to adjust the figures using the current policy baseline and directs the Finance Committee to propose raising the federal debt ceiling by up to $5 trillion.