With All Eyes on DOGE, Congress Plays Budget Games with America’s Fiscal Future
New administration. New Congress. Same old budget tricks.
While Americans fixate on Elon Musk’s Department of Government Efficiency (DOGE) to rein in wasteful spending, Congress is quietly plotting to make the nation’s fiscal situation worse. The House recently passed a budget resolution calling for $4.5 trillion in tax cuts plus $300 billion in new spending over the coming decade—all balanced out with $2 trillion in offsetting spending cuts and about $2.6 trillion in pixie dust from assuming their budget will have economic growth taking off like one of SpaceX’s rockets. (I believe it when I see it.) Now the Senate is attempting to rewrite the budget resolution using an accounting gimmick to pretend extending the 2017 tax cuts won’t increase the deficit. Their tactic: switching to a ‘current policy baseline.’ A major reason for this bait-and-switch maneuver is Medicaid, with legislators reluctant to hit the brakes on the federal funding gravy train that pads their own state budgets.
For those not fluent in budget double-speak, here’s what’s happening: Instead of recognizing that extending temporary tax cuts past their expiration date will add to the deficit, the Senate wants to claim that these tax cuts were always meant to be permanent. When Congress passed the 2017 tax cuts they made most of the individual tax provisions temporary so as to avoid having to pay for their deficit impact. Fast forward to 2025 and Congress is just as reluctant if not more so to reduce spending or close wasteful tax loopholes to extend tax cuts responsibly. It’s like an alcoholic showing up the bar with just enough cash to have ‘one drink,’ downing ten, putting them all on a credit card, and telling themselves that was the plan all along.
It’s like an alcoholic showing up the bar with just enough cash to have ‘one drink,’ downing ten, putting them all on a credit card, and telling themselves that was the plan all along.
If the Senate’s plan succeeds, tax cut extensions won’t count as new costs, which means they don’t need to be offset to make the reconciliation budget math work (reconciliation is a powerful mechanism to pass legislation with a simple majority vote in the Senate, thus avoiding a filibuster, so long as the fast-tracked bill meets certain criteria, including being deficit-neutral outside the 10-year budget window). This maneuver in turn would then make room for additional tax cuts—such as President Trump’s campaign promises, like eliminating taxes on tips and on Social Security benefits and possibly expanding the state and local tax deduction, which is currently limited to $10,000 per federal income tax return, to be offset by new spending reductions.
The Senate’s sleight of hand could further eliminate pressure to make bigger spending cuts as part of reconciliation. Under the House’s plan, deficit hawks at least fought to include $2 trillion in spending cuts to offset a portion of the 2017 tax cut extensions. That’s not enough to stabilize the debt at no more than the US gross domestic product (GDP) nor to reduce current deficits from their crisis-level highs of $2 trillion annually that have become the new normal, but it’s better than nothing. The Senate’s approach, however, would likely reduce the overall size of spending cuts—because instead of having to find savings to extend the 2017 tax cuts, the Senate would just redefine them as ‘free.’
Medicaid: The State-Administered Spending Beast Neither Party Wants to Tame
This budget debate isn’t just about tax cuts—it’s also about the government’s most expensive welfare program: Medicaid. The House budget calls for $880 billion in 10-year savings from the congressional committee that oversees Medicaid. With politically popular measures among Republicans, such as work requirements, saving only a modest amount of the required total (about $100 billion over the decade), more contentious measures would be necessary. The biggest target: reducing federal Medicaid reimbursement rates. This would mean asking states to shoulder more of their own spending burden, reducing eligibility, or changing how health care providers get paid—however states decide to square their own budget circles. But here’s the dirty little secret: Republican states are just as hooked on federal Medicaid dollars as Democratic ones.
Republican states are just as hooked on federal Medicaid dollars as Democratic ones.
According to reporting by the New York Times, in some regions that overwhelmingly elect Republicans, like eastern Kentucky and eastern Louisiana, between one-third and two-fifths of the population is on Medicaid. It’s no surprise then that Republican lawmakers are hesitant to make cuts that could put their own states on the hook for either shrinking constituent benefits or raising the taxes necessary to fund more extensive Medicaid programs, without Uncle Sam picking up most of the tab. The same politicians who rail against excessive government spending don’t want to be the ones pulling the breaks on the federal Medicaid gravy train greasing their own state budgets.
And yet, even President Obama endorsed major Medicaid reforms to address program absurdities—like ending the federal government’s favoritism toward able-bodied Medicaid expansion enrollees over traditional beneficiaries (low-income children, pregnant women, seniors, and people with disabilities), and reducing opportunities for states to fleece federal taxpayers using a provider tax money laundering scheme.
The same politicians who rail against excessive government spending don’t want to be the ones pulling the breaks on the federal Medicaid gravy train greasing their own state budgets.
Congress could meet the House savings target with just these two overdue reforms. Per a Congressional Research Service report, eliminating the Medicaid provider tax scheme could save more than $600 billion over 10 years. Meanwhile, a proposal by the Paragon Institute to equalize the federal matching rate between the expansion population and traditional Medicaid beneficiaries could save more than $500 billion over that time span. As Brian Blase, Paragon Institute President, explained:
“the much higher federal reimbursement rate for the expansion population has led to a surge of improper spending and did not improve health outcomes for Americans.”
Fiscal Responsibility is a Tough Pill to Swallow
Neither the House nor the Senate budget plan is a serious attempt at restoring fiscal sanity. The House at least nods toward spending cuts, even if they won’t fully match planned tax cut extensions. But the Senate’s baseline-switching gimmick is pure fantasy accounting. In the real world, making the 2017 expiring tax cuts permanent without paying for them will balloon the deficit, just as refusing to rein in Medicaid spending, while putting Social Security and Medicare’s unfunded obligations on the ‘do not touch’ list, will drive the US further down the road to fiscal ruin.
Americans deserve an honest conversation about fiscal policy and the tradeoffs involved—not creative accounting and budget gimmicks that allow politicians to keep spending like there’s no tomorrow. Because if we continue down this road, there won’t be a tomorrow where America’s finances—a key foundation of the nation’s economy—are still intact. And DOGE won’t be able to save us from the fiscal crisis of Congress’s making either.