Republicans split on tackling deficit, including Medicare, Social Security reforms

Republicans are divided over how aggressively to tackle the deficit, including reforms to Medicare and Social Security, if they regain control of Washington next year, when the federal debt is projected to hit $36 trillion.

Former President Trump is calling for $4 trillion to $6 trillion in tax cuts over 10 years if he is elected to another term, and the Congressional Budget Office projects that even without new tax cuts, the debt will grow by more than $20 trillion over the next decade.

The dire budget outlook is putting pressure on Republicans to come up with plans to rein in the federal deficit, something they have made a top political issue as they’ve blamed federal spending during the Biden administration for fueling inflation.

Yet GOP lawmakers are deeply divided over how to reduce the deficit, and some fiscal conservatives are blaming their own leaders for running up the debt during Trump’s White House term.

A big question Republicans would confront immediately if Trump wins big on election night is whether to offset the huge costs of his new tax proposals, such as ending taxes on tipped income for service and hospitality workers and eliminating taxes on Social Security benefits.

Sen. Chuck Grassley (R-Iowa), a senior member of the Senate Finance Committee, said the “jury’s out” on whether Republicans should offset the cost of the expiring 2017 Tax Cuts and Jobs Act, Trump’s signature legislative achievement of his term.

But Grassley said in June that new proposals, such as shielding tipped income and Social Security benefits from taxation, which were not part of Trump’s 2017 tax law, should be offset with spending cuts or revenue-raising measures.

“When we’ve done it with regular tax extenders, we’ve always said it’s just an extension of existing law, it doesn’t need to be offset. Now, would that apply to something as big as the 2017 [tax law] and the repeat of that? It would surely have to offset new stuff put in,” he told reporters.  

The Committee for a Responsible Federal Budget estimated Trump’s proposal to exempt tips from income and payroll taxes could add $150 billion to $200 billion to the debt over 10 years, though policy experts warn the impact could be much larger depending on how it would impact behavior.

And the nonpartisan policy group estimates Trump’s proposal to eliminate taxation of Social Security benefits would increase deficits by $1.6 trillion to $1.8 trillion through 2035.

The Congressional Budget Office projects extending Trump’s expiring tax law would add $4.6 trillion to the deficit over 10 years.

There’s also a brewing discussion about whether Republicans should tackle Medicare and Social Security, two of the biggest drivers of the federal deficit, if they win unified control of government, with some lawmakers warning that the two entitlements face looming insolvency.

“Some people call it off-limits, but I’ve always said we have to look at all of it,” said Sen. Ron Johnson (R-Wis.), who wants the programs included in a broader discussion about how to reduce deficit spending.

“I’ve said we shouldn’t have two different parts of our budget, discretionary and mandatory. It should be: Here’s the budget, this is what we spend. So we’re forced to look at how much money we’re spending that we don’t have, and do everything we can to preserve and save those programs,” he said of Medicare and Social Security.

Johnson warned the federal debt will be close to $50 trillion when Medicare and Social Security are projected to become insolvent, which will make it much tougher for policymakers to draw from the federal government’s general fund to keep benefits from shrinking dramatically.

Medicare’s hospital insurance trust fund was projected to run out of funding by 2028 but now is expected to have enough funding to last until 2036 due to a stronger-than-expected economy.

The Social Security trust funds are now projected to be depleted in 2034.  

“We better start looking at the entire federal budget and figuring out what we can do to rein in all the spending,” Johnson said. Congress “took the pandemic and we just dramatically increased spending across the board, and that’s impacted inflation and interest rates.”

“It’s completely out of control,” he said.

Republican leaders are coming under pressure from conservatives to take federal deficits and the debt more seriously than they did during Trump’s prior term.

“What do you hear Republicans all day saying now? Bidenomics, Bidenomics, inflation. How much debt did Trump add? Almost $8 trillion. How much is [President] Biden adding? Eight trillion. Who’s responsible for inflation? Both parties. I’m honest enough to say that,” Sen. Rand Paul (R-Ky.) said.

Paul said “we have to look at all spending.”

“I think there are ways of looking at Medicare, Medicaid, food stamps without reducing benefits, but just reducing waste and administrative costs,” he added. “Medicare has a trillion-dollar budget. Could you have a 1 percent saving in Medicare by tweaking some of the administration of it?”

But other Republicans are trying to take Social Security and Medicare off the table early in the discussion, pointing to Trump’s campaign promise not to touch those programs.

“We’ve tried to deal with spending, just looking at discretionary spending. Actually, discretionary spending has not jumped up nearly as much as mandatory. Given President Trump and President Biden have said they don’t want to touch either Medicare or Social Security … I think it’s worth looking at other mandatory spending,” Sen. John Cornyn (R-Texas) said, referring generally to other mandatory programs such as Medicaid, food assistance, veterans programs and the school meal and Head Start programs.

“It is an entitlement and has been growing like 7 or 8 percent a year,” he said of other mandatory spending, which increases automatically and is not set by the annual appropriations process in Congress.

Cornyn, who is running to succeed Sen. Mitch McConnell (R-Ky.) as the next Senate GOP leader, said Republican policymakers also need to look at closing special tax breaks and loopholes if Trump wins and they regain control of the Senate.

“We also need to look at the tax code. I think the latest number I saw is about $1.8 trillion in tax expenditures. Some of them are legitimate deductions and things like that, but some of them are subsidies, transfer payments and basically welfare programs,” he said.

Republican lawmakers regularly propose steep cuts to discretionary spending, but there’s a growing acknowledgement within the GOP that cuts to the annual appropriations bills won’t go far enough to make a meaningful impact on future deficits.

And policy experts point out that it’s impractical to cut discretionary spending through the budget reconciliation process, which GOP senators would use to get Trump’s agenda past a Democratic filibuster in the Senate.