Republicans Mired in Maze on Cutting Spending to Justify $4.6 Billion Tax Cut
Congressional Republicans find themselves trapped in a mathematical maze unable to advance President Trump’s “big, beautiful bill” to reduce spending and cut taxes. Their dilemma is finding $1.5 trillion in spending cuts that can pass muster with House and Senate Republicans.
The other alternative, which crosses the red line of Republican orthodoxy, is some form of a tax increase on rich Americans.
Because the bill will be considered under budget reconciliation rules, which prohibit a Senate filibuster, Republicans are pretty much on their own without Democratic support. GOP leaders cannot afford to lose more than two or three votes.
Significant Spending Reductions
Speaker Mike Johnson and Senate Majority Leader John Thune are having trouble offsetting modest spending increases in border security and defense, let alone cut $1.5 trillion in expenditures, mount a credible defense for extending a $4.6 trillion income tax cut and add new tax cuts promised by Trump on the campaign trail.
The GOP-approved budget blueprint called for at least $1.5 trillion in spending cuts, mostly from Medicaid, to satisfy Republican fiscal hawks. Now, at least a dozen Republicans have balked at slashing Medicaid spending. Trump already took the other two big spending categories – Medicare and Social Security – off the table, along with veteran’s health care.
The magic bullet Trump’s trade advisor Peter Navarro promised – $6 trillion in tariff revenue – hasn’t materialized, in part because of Trump’s on-again-off-again tariffs, and also because of the negative impact his tariff threats are having on U.S. imports and exports.
Spending cuts by Elon Musk and his Department of Government Efficiency haven’t come close to the $1 trillion he promised to save. Musk’s latest estimate is $150 billion, and Congress hasn’t voted to implement any of those proposed cuts, which also may turn out to be controversial.
Smoke But No Fire
“The DOGE group is throwing up a lot of smoke, but is basically doing it with a small candle,” former New Hampshire Senator Judd Gregg, who served as Republican chair of the Senate Budget Committee, told The Hill. “They’re going after marginal discretionary accounts, which basically generate very small savings. There’s a lot of flamboyance and very little substance.”
“They’re also not going to get it out of tariffs,” Judd added. “You have Navarro running around saying they’re going to get $6 trillion in tariff revenue. That’s absurd. It’s basic economics. You raise the price on imports, people stop buying imports.”
“I don’t see where you can do $1.5 trillion unless you’re actually getting into Medicaid and real benefits,” says William Hoagland, a senior vice president at the Bipartisan Policy Center who served as Republican staff director of the Senate Budget Committee. Hoagland said applying work requirements on Medicaid recipients would only save $109 billion over 10 years.
A Tax Hike on the Rich
One “solution” being kicked around is extending the 2017 Trump tax cuts but with a higher top income bracket. The current 37 percent rate could be raised to 39.6 percent for taxpayers earning more than $1 million per year. Several Senate Republicans are balking at that idea, even though it might earn a few Democratic votes.
Republicans also worry about the revenue impact of including additional tax cuts promised by Trump on the campaign trail for overtime, tips and Social Security benefits.
Limiting Medicaid Provider Taxes
Another line of attack is to restrict provider taxes, which states including Oregon use to boost federal Medicaid payments that are then remitted as payments to health providers. The Committee for a Responsible Federal Budget estimates that banning what it calls Medicaid provider tax “gimmicks” would save $720 billion over 10 years.
Limiting those taxes to 2.5 percent of provider revenue would save $285 billion. Limiting them to 10 percent of state general funding would save $350 billion, according to its projections. Opposition is likely for this idea, including from red states.
Eliminating Tax Breaks
Texas Republican Senator John Cornyn, a member of he Senate Finance, has suggested eliminating so-called niche tax breaks that benefit special constituencies. One of his targets is the mortgage interest deduction for income tax filers, which would rekindle an earlier congressional free-for-all that alienates GOP members from New York and California.
Republicans may try to ax Biden-era tax credits for buying electric vehicles and renewable electricity production. However, those credits also enjoy pockets of Republican support. Four GOP senators sent Thune a letter warning elimination of those tax credits would harm businesses and jobs in states such as Alaska, Utah, Kansas and North Carolina. There are only 53 Republican senators.
Other Options
Chaos in the Defense Department could open a door to spending cuts. Instead, there appears to be a solid GOP majority to increase defense spending and border security next year by $150 billion each.
The most awkward situation exists in the House Energy and Commerce Committee that has been assigned the formidable task of slashing $880 billion in Fiscal Year 2026 spending. The most obvious target, Medicaid reductions, has been taken off the table, which doesn’t leave much left to cut.
Hoagland echoes a point made by Oregon Republican Congressman Cliff Bentz, who sits on House Energy and Commerce, that there is money to make selling radio frequency spectrum. The question is whether there is enough to sell and enough buyers to purchase $880 billion worth of spectrum.
The Debt Ceiling
If the $1.5 trillion in spending cuts materialize, Congress could have until November 2026 to vote to raise the debt ceiling by $4 trillion. That timing could be moved up by failure to enact spending cuts envisioned in the budget deal. Even with optimistic estimates of spending cuts, the United States would need to raise the debt ceiling again in 2027.
The debt ceiling would last longer without the tax cuts Republicans have embraced.
Timing of a debt ceiling measure also could be affected by economic growth or recession. The GOP-approved budget awarded a $2.6 trillion economic growth benefit, which economists view as doubtful in light of Trump tariff policies that could trigger a recession.
Earmarks Are Back
Even when you’re slashing federal budgets, congressional earmarks are irresistible, even for arch-conservatives who want to slash federal spending.
During the Biden administration, when earmarks were resurrected, the Freedom Caucus fiercely opposed earmarks. “I will never support earmarks!” asserted Maryland Congressman Andy Harris who chairs the Freedom Caucus. However, in FY 2025 after Republicans took control of the House, Harris sought $140 million in earmarks, including $35 million for Ocean City to improve sidewalks, streetscaping and dredging.
“I regularly vote against bloated spending bills and legislation that expands the size of the federal government,” Tennessee Republican Congressman Tim Burchett told his constituents. “However, it is also my responsibility to return as much money back to Tennessee as possible.” In FY 2024, Burchett requested $50 million for two dozen projects in his district.
Despite their renewed support for earmarks, congressional Republicans zapped $16 billion in earmarks in the FY 2025 budget deal. But there are how new instructions for earmarks in FY 2026. All of Oregon’s congressional delegation, except Bentz, submit earmark requests.
