Here are this week’s reading links and fiscal facts:
GAO: President Trump’s pocket rescission is illegal. Trump unilaterally canceled $4.9 billion in foreign aid through a pocket rescission. According to the Government Accountability Office (GAO), “A pocket rescission is illegal […] Congress holds the power of the purse—approving a budget and appropriating funds. Presidents and executive branch agencies are responsible for administering those funds […] The Impoundment Control Act (ICA) does not provide that authority. If Congress wanted a president to have that authority, it would need to change the law.” While the rescissions package earlier this summer was welcome, pocket rescissions are an example of executive overreach. As Lett emphasizes, “Legislators should reassert their constitutional responsibilities to control the federal purse strings and proactively shape America’s fiscal future, instead of allowing the executive to expand its power unchecked.”
President Trump moves toward nationalizing parts of the private sector. Jonah Goldberg reports in The Dispatch: “Trump adviser Kevin Hassett…says the Intel venture is a first step toward a sovereign wealth fund. Commerce Secretary Howard Lutnick recently revealed that the administration is actively considering acquiring stakes in defense contractors. Trump—and his defenders—want a sovereign wealth fund so that Trump can independently spend taxpayer money as he pleases.” More state control over private companies is dangerous for the economy. As Boccia writes, “[A sovereign wealth fund] would invite political interference in capital markets, opening the door to cronyism, favoritism and inefficiency. Given Washington’s track record, does anyone believe that a government-run investment fund would be free from political meddling?” The same logic applies to government stakes in private companies; they will likely “allocat[e] capital based on political priorities rather than economic merit.”
Fiscal policy is the systemic inflation driver. Mercatus’ Veronique de Rugy writes, “It is tempting to pin today’s price pressures on the new round of tariffs. After all, import taxes raise costs, and history shows they feed into consumer prices. But the data makes it clear that this explanation is far too narrow. The more fundamental driver is fiscal policy, and more crucially, the consolidated government budget constraint.” She continues, “Legislators seem keen to solve the upcoming insolvency of Social Security and Medicare by maintaining the benefits as they are and paying for it all with borrowing. Doing so would mean an increase of the debt of $116 trillion over 30 years.” With excessive US deficit spending, the fiscal dominance pressure mounts: “The Fed can raise rates, and tariffs will indeed make imports costlier, but as long as budget deficits continue to balloon and fiscal dominance looms, stabilizing prices will be extraordinarily difficult,” concludes De Rugy.
A second reconciliation bill could be a spending spree. Kimberley Strassel warns in WSJ Opinion: “Republicans as a whole grow way more interested in a Reconciliation 2.0. Only this being today’s GOP, the motivation isn’t spending reform. All the talk instead is about new goodies, industrial policy and protecting home-state interests. The very real risk is that fiscal conservatives tee up a vehicle that becomes a grab-bag of new spending and bad policy, with little to no deficit reduction.” A second bill could accelerate the fiscal damage of the first bill. As Lett concludes, “the [OBBBA] won’t even remotely pay for itself. Altogether, the bill accelerates the nation towards a fiscal crisis at a time when we should be aggressively paring back the deficit each year.” Strassel cautions Congressional fiscal hawks: “House conservatives will have to decide if the small chance of getting this narrow majority to agree to substantive spending cuts is worth the growing risk the bill becomes a free-for-all. If recent history is a guide, fiscal conservatives will get hammered to agree to more spending and anti-free-market provisions—not the president pushing moderates to cut programs.”
Tariffs represent a $3.3 trillion tax hike on Americans. A new Congressional Budget Office (CBO) report states: “We project that increases in tariffs implemented during the period from January 6, 2025, to August 19 will decrease primary deficits (which exclude net outlays for interest) by $3.3 trillion if the higher tariffs persist for the 2025‒2035 period.” The CBO frames the tariff revenue neutrally—simply as another source of government revenue. Bryan Riley on X gives a better perspective, as he estimates that the $3.3 trillion breaks down to a cost of “$25,000 per household over the next 10 years, confirming the biggest peacetime tax increase in history.” He then critiques the CBO report: “CBO wrongly says this money will reduce the deficit. It is more likely to fuel additional federal spending.” As Dave Herbert emphasizes in a guest post on an earlier CBO tariff estimate, “[i]f we want to get serious about actually reducing the national debt rather than celebrating reducing deficits, we need to look at cutting spending.”