WASHINGTON — The Trump administration is demolishing the U.S. Agency for International Development as part of a broader quest to slash federal spending, but the $40 billion saved by cutting foreign aid is a drop in the bucket next to the tax cuts Republicans are planning.
House Republicans are getting ready to unveil a package of tax and spending cuts that could widen the federal budget deficit by trillions of dollars over the next decade, including cutting taxes on tips, overtime, and Social Security payments and extending the GOP’s 2017 tax cut law.
GOP lawmakers readily admit the revenue loss from their tax proposals will be far larger than the spending cuts they’re envisioning, but they insist that rapid economic growth will boost federal receipts enough to make up the difference.
“There will be a lot of economic growth. And if you think about what happened in 2017 — dramatic economic growth, possibly even more this time,” Rep. Steve Scalise (R-La.), the No. 2 Republican in the House, told HuffPost on Friday.
What happened in 2017 is that a Republican tax cut bill signed into law by President Donald Trump in his first term was projected by the Congressional Budget Office to lose more than $1 trillion in revenue. Receipts have come in higher than expected, though the CBO said in December the increase is mostly due to inflation that started in 2021.
A large portion of the tax cuts enacted in 2017 were made temporary as a budget gimmick, and now Republicans are looking to extend them before they expire at the end of this year.
On Thursday, the Committee For a Responsible Federal Budget, a nonpartisan think tank, estimated that extending the 2017 tax cuts — in addition to the other Trump initiatives, such as his vow to cut taxes on tips — would cost somewhere between $5 trillion and $11 trillion.
“Such a package could also lead to significant income shifting and tax avoidance, weaken the Medicare and possibly Social Security trust funds, dramatically boost interest costs, and increase the risk of a debt spiral,” the group warned on Thursday.
Still, Republicans insisted faster economic growth would bring in more revenue that budget forecasters expect.
“We’re the team that is trying to restore fiscal sanity and responsibility here,” House Speaker Mike Johnson (R-La.) told reporters Friday. “When we extend the tax cuts, we have to make sure we don’t have a big impact on the deficit.”
Scalise said Republicans were considering around $900 billion in cuts; hardliners in the conference want something more like $2 trillion, with cuts to social programs like Medicaid and the Supplemental Nutrition Assistance Program, which help tens of millions of Americans obtain health care and food.
“Reasonable growth, plus significant cuts, paired with tax policy, I can reasonably say I believe, will reduce the deficits,” Rep. Chip Roy (R-Texas) said. “That’s my rough formulation.”
Most budget wonks doubt economic growth spurred by tax cuts can offset the revenue lost through the lower taxes. Even the conservative Tax Foundation has found that fully extending the expiring tax cuts would still cost $3.5 trillion after accounting for growth.
The Committee for a Responsible Federal Budget on Friday called Republicans’ growth and revenue projections “fantasy math.”
“Tax reform can generate economic growth that can impact revenue, but we’re talking about tens or hundreds of billions, not trillions,” CRFB’s Marc Goldwein told HuffPost.
As Republicans took initial steps to move their agenda in Congress this week, billionaire Elon Musk and his Department of Government Efficiency continued to wreak havoc on the federal government, freezing congressionally approved spending and putting thousands of federal workers on leave while incentivizing more to leave their jobs. The savings could eventually go toward helping the GOP offset the cost of some of the proposed tax cut package.
The Trump administration has also put nearly all of the 14,000 USAID workforce on administrative leave, leaving only 289 agency employees on the job worldwide, a move that was challenged in court by a pair of federal employee unions on Friday. Musk has bragged about putting the agency through a “wood chipper” as Democrats and USAID employees cry foul about the impact of the humanitarian aid freeze in the U.S. and across the world.
Randy Chester, vice president of the American Foreign Service Association at USAID, said the agency is “effectively closed” following staff cuts and a freeze on its funding.
“Humanitarian assistance will stop,” Chester told CNN on Friday. “Food aid will stop being distributed. Medication to fight HIV will stop. Immunization programs will stop. Programs that support the private sector development and create jobs in countries overseas will stop. Our partnerships with American companies will stop.”
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“In addition to the 10,000 USAID employees, the private sector and the nonprofit sector will also face tremendous layoffs as they are forced to reduce their staff because they no longer have funds from the U.S. government,” he added.