Debt Digest | Senate to Vote on Overturning Trump’s Tariff Emergency Abuse

Links & Fiscal Facts

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Stepping into a New Role at Cato (by Dominik Lett)

I’m excited to share that I’ve been promoted to policy analyst at Cato. Huge thanks to Romina Boccia, Alex Nowrasteh, and others who’ve helped me grow as a scholar. My research has tackled entitlement reform, disaster policy, and fiscal dominance, including co-authoring three Cato studies with Romina on the fiscal costs of emergency designations, stagflation’s threat to Social Security, and how Congress should respond to the 2025 fiscal cliff. Our work has gained traction in Congress, shaping debates on spending restraint and budget transparency. In this new role, I’ll continue to focus on advancing bold spending cuts, strengthening budget rules, and addressing issues related to impoundment power. To my colleagues, our Debt Digest readers, and policy collaborators—thank you. I’ll keep making the case for urgent fiscal reform here and at Cato. Stay tuned.

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(By Romina Boccia): Last Friday, I had the pleasure of speaking at a Harvard event. We covered topics ranging from US debt and the future of entitlements to DOGE and other current fiscal and economic issues. My gratitude to Prof. Harvey Mansfield for the invitation. You can find the video of the talk below.

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Here are this week’s reading links and fiscal facts:

• Entitlement spending and interest payments drive the US long-term budget deficit. Mercatus Center’s Jack Salmon challenges a common misconception that tax cuts and broader tax policy decisions are driving persistent budget deficits and growing debt. Based on the latest Congressional Budget Office (CBO) projections, he states: “[T]he entirety of the long-term structural deficit can be attributed to spending policy decisions. Specifically, 67 percent of the long-term structural deficit is attributed to growth in mandatory spending programs, while the remaining 33 percent is attributed to growth in interest payments on the debt. Breaking this down further, the most significant driver of long-term mandatory spending is Medicare [see figure below].” As we’ve argued in the previous Debt Digest edition, a BRAC-like fiscal commission remains one of the most promising tools to overcome political gridlock and rein in runaway entitlement spending.

  

• Two misguided Social Security proposals in Congress. Rep. Nicole Malliotakis (R-NY) recently introduced the Tax Relief Unleashed for Seniors by Trump (TRUST) Act (H.R. 1129) to double the income thresholds for taxing Social Security benefits—from $25,000 to $50,000 for single filers and from $32,000 to $64,000 for couples. Similarly, Sen. Pete Ricketts (R-NE) introduced the Social Security Check Tax Cut Act, which would temporarily reduce taxable benefits by 10 percent in 2026 and 20 percent in 2027. These proposals are misguided. Reducing or eliminating benefit taxation would harm Social Security and Medicare finances. It would also be unfair. Cato’s Adam Michel explains that only the top 40 percent of beneficiaries pay taxes on their benefits. Thus, this change would cut taxes for the wealthiest retirees while putting more burdens on younger workers. As Michel argues: “To treat all income sources similarly, a larger share of Social Security benefits should be included in taxable income in favor of lower tax rates for everyone, not just seniors.”

• Congress should reject budget gimmicks and let Obamacare subsidies expire. Punchbowl News reports that the House and Senate leaders want the two chambers to have different spending cut targets in a compromise budget resolution—$3 billion minimum for the Senate and $1.5 trillion for the House. “[This] gives Republicans more time to figure out exact spending-cut numbers. It also gives them maximum flexibility for Byrd Rule compliance [...] But House deficit hawks could conclude the Senate isn’t serious enough about locking in big spending cuts and balk at the compromise resolution,” explains Punchbowl. As I’ve argued before, fiscal responsibility requires rejecting the Senate’s ‘current policy baseline’ gimmick, which would ignore the cost of extending the 2017 Trump tax cuts and add trillions to federal deficits. Instead, Congress should aim to meet the House’s $2 trillion target, at minimum. Punchbowl also notes that an interest group is lobbying Congress to extend the expiring Obamacare subsidies. But as I’ve written, Congress should let these subsidies expire and “prevent the entrenchment of temporary programs that worsen fiscal imbalances.”

• Senate to vote on terminating Trump’s tariff emergency. Senator Tim Kaine (D-VA) is invoking the National Emergencies Act (NEA) to force a vote on ending the Trump administration’s emergency declaration, which imposes 25 percent tariffs on many Canadian imports. Under current law, Congress has the power to override presidentially declared emergencies, but legislators need a two-thirds majority to override a presidential veto. Congress desperately needs to reform this process and rein in the executive branch, which possesses a long list of unchecked and easily abused emergency powers. Tariffs starkly illustrate the danger and scope of presidential emergency powers, with White House aide Peter Navarro stating that the administration aims for $600 billion in tariff revenue per year. Taking that number at face value, it would represent the most significant peacetime tax increase in American history, all planned without a single vote in Congress. Some GOP senators are joining with Politico reporting that “Collins is poised to join GOP Sens. Rand Paul of Kentucky, who is a co-sponsor of Kaine’s resolution and a strong opponent of tariffs, and Thom Tillis of North Carolina, who has also expressed concerns about Trump’s tariff plans for North American neighbors.” It’s up to Congress to prevent economically damaging, unpopular, and ill-advised tax increases through executive abuse of ‘emergency’ powers.

• Remove non-citizens from welfare programs. In a recent Hill op-ed, Cato’s Alex Nowrasteh and Jerome Famularo argue for excluding non-citizens from welfare programs, which would result in significant savings and be less politically contentious for Republicans than other spending cuts (e.g., Medicaid cuts for citizens). While non-citizens consume less welfare and entitlement benefits than native-born Americans, the fiscal impact of excluding them could still be substantial. For example, removing all non-citizens from Medicaid alone could save $356 billion over 10 years. Going further and removing non-citizens from other welfare and entitlement programs could save about $1 trillion over the next decade. As Nowrasteh and Famularo put it: “Instead of being distracted by a phantom border problem, Congress should build a wall around the welfare state instead of around the country.”