Debt Digest | Tariffs Are a Luxury Belief of the Right
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
Proposed Medicaid savings are not cuts. David Ditch, senior analyst in fiscal policy at the Economic Policy Innovation Center (EPIC), explains that the House’s $880 billion Medicaid savings target won’t reduce spending on the program but simply slow its growth. According to Ditch, even if Congress implements reforms that result in higher savings of $918 billion, Medicaid spending would still grow by 3 percent annually—rising from $618 billion in FY 2024 to $830 billion in FY 2034 (see figure below). Ditch also outlines some common sense reforms, including tackling the program’s $1 trillion in improper payments “by increasing the frequency of eligibility reviews, regularly auditing state-level programs, and holding states accountable for excessive improper payments.” In addition, he proposes addressing the provider tax scam, which could save over $600 billion in the next decade—a prudent reform we’ve covered in previous editions of Debt Digest.
Tariffs are a luxury belief of the right. Cato’s Scott Lincicome critiques Trump administration officials for justifying tariff-driven price increases, writing: “‘Access to cheap goods’ isn’t the American dream, but it sure helps us achieve it. This is particularly true for low-income workers who have tight budgets and little leisure time. Shelter, food, transport, utilities, and clothes accounted for approximately 68 percent of the poorest 20 percent of U.S. households’ annual expenditures but just about half of the richest 20 percent of households’ spending. It’s easy for someone worth, say, $521 million, like [Treasury Secretary] Bessent, to pay a few bucks more for everyday goods and still achieve his goals and ambitions; it’s far more difficult for a single mom with four kids to do the same.” I’ve written before that Modern Monetary Theory (MMT) is a luxury belief embraced by the political left, as MMT’s wealthier proponents ignore the inflationary effects that disproportionately harm lower earners. As Mercatus Center’s Veronique de Rugy argues: “[T]he New Right's embrace of destructive economic policies meets the definition of luxury belief in just about every way: It's self-serving and counterproductive, designed to elevate one's personal status without regard to the practical consequences for those with less power and privilege in the world.”
The House Budget Committee chair understands that spending cuts are the key to growth. Rep. Jodey Arrington (R-TX), chair of the House Budget Committee, acknowledges the economic benefits of reducing spending, sharing CBO research that stabilizing debt by spending cuts would have a greater pro-growth impact than tax cuts. He pinpoints the main reason behind the nation’s bleak fiscal outlook—”Automatic, unchecked mandatory spending — expenditures Congress does not vote on annually and rarely even reviews.” Rep. Arrington also warns of the risk of a debt crisis: “Higher interest rates mean ballooning debt service costs, trapping us in a vicious cycle of economic and fiscal decline.” As Dominik Lett and I’ve written: “Spending cuts aren’t a burden—they’re a path to prosperity. By prioritizing fiscal discipline, Congress can boost growth, restore market confidence, and secure a brighter economic future for all Americans.”
Bitcoin reserve will help crypto lobbyists line their pockets—while serving no other meaningful purpose. Cato’s George Selgin critiques President Trump’s ‘strategic bitcoin reserve’ initiative, arguing there “is simply no good rationale” for the government holding an asset that doesn’t generate income. He notes: “Even if either reserve were to appreciate [in value], there’s no telling the government would ever take advantage of that appreciation by selling [...] If anything, it’s quite likely the same people in the crypto community that lobbied to create them are going to lobby intensively against ever realizing them. They are interested in their own capital gains.” We’ve highlighted Selgin’s thoughts on a bitcoin reserve in previous editions of Debt Digest here and here.
Simplify the tax code. Cato’s Chris Edwards addresses reports that the Trump administration wants to cut the IRS workforce in half, arguing that would be misguided without simplifying the tax code. “If the Republicans simplify the tax code dramatically like they contemplated during the 90s with a flat tax, then you could cut the IRS in half [...] But we have a president who wants to make the tax code more complicated,” Edwards told Yahoo Finance. He pointed to Trump’s “no tax on tips” promise as an example: “That will require a lot of administration and additional auditing since you’re creating a lot of incentives for regular workers to shift their wages into tips.”
