The Republican budget is an attack on the American economy
Everywhere you look, it delivers blows to America's economic future.
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Since 1970, the United States has endured eight recessions. Seven of them began under Republican presidents; the exception was a brief one at the end of Jimmy Carter’s term.
If Donald Trump brings us another to keep the cycle turning, it will be unusual in that the most direct cause will be a single disastrous federal government policy — namely the haphazard and ill-considered tariffs Trump is applying to foreign goods. (Though it should be noted that as this edition of the newsletter was being finalized, a federal court blocked Trump from imposing sweeping tariffs, ruling that he’s exceeding his authority.)
But the gargantuan budget bill Republicans are now moving through Congress will do its part to damage the American economy as well, at a moment of fear and instability. In the broadest terms, the bill is an enormous upward transfer of wealth — perhaps the largest in history — taking from those with lower incomes and giving to the rich. And in its details there are dozens if not hundreds of blows to the economy.
Put the tariffs and the budget bill together, and Republicans may be herding us onto an express train to the next recession.
Here are just some of the ways the budget is likely to have a negative impact on the economy.
Hugely expensive tax cuts that do almost nothing for economic growth
The driving purpose of this bill is to extend and enhance the tax cuts Trump signed into law in 2017, most of which went to the wealthy and corporations.
Amazingly, we are still forced to listen to Republicans say with a straight face that cutting taxes for the wealthy will create such an explosion of economic growth that the tax cut will pay for itself. This is what they always say to justify upper-income tax cuts, and they’re always wrong.
At best, a tax cut can cause a small increase in economic activity, which will offset some fraction of the cost. But the more the cut is targeted at the rich, the less economic impact it will have. If you give people living paycheck to paycheck a tax cut (or a stimulus check), they’re likely to spend the money quickly, since they have immediate needs they can’t put off. But if you give wealthy people a tax cut, they’ll probably just save it, meaning the money doesn’t recirculate through the economy.
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While projections of just how much the tax cut would add to economic activity vary, they’re all extremely small. For instance, the bipartisan Joint Committee on Taxation analyzed the Republican bill and concluded that it is likely to produce an extra $103 billion in economic activity over 10 years, bringing its cost from $3.8 trillion all the way down to $3.7 trillion.
Brutal cuts to social services
The largest cut in the bill comes from healthcare, where Republicans are proposing a series of changes to Medicaid and the Affordable Care Act marketplaces. These changes will cut $880 billion from the programs, in large part by kicking millions of people off their health insurance.
Losing insurance can cause a cascade of economic effects that makes people sicker, less productive, less likely to hold a job, and less likely to pay taxes, which is why study after study has shown that states that accepted the ACA’s expansion of Medicaid saw a range of economic benefits.
One of the primary techniques the bill uses to reduce the rolls is “work requirements” that force beneficiaries to navigate a bureaucratic obstacle course and have their insurance taken away if they make a mistake. Despite the intuitive appeal that makes them popular in polls, work requirements are a policy disaster that will produce fewer people working, not more. And they reflect a contempt for poor people, who are assumed to be lazy malingerers who have to prove their moral worth in order to be insured (needless to say, this is not something we demand of the wealthy people who receive all sorts of government benefits).
The bill also cuts $300 billion from SNAP, previously known as food stamps. This too will damage the economy. Since SNAP recipients have low incomes and need their benefits to feed their families, they immediately spend those funds in their communities, not only stabilizing their own lives but also benefiting local grocery stores and other retailers, money that then recirculates. One study by the Economic Research Service of the USDA found that every dollar of SNAP spending produces an extra $1.54 in GDP. If that arithmetic held, cutting $300 billion from SNAP would reduce GDP by over $454 billion.
The bill would not only strip hundreds of billions of dollars from SNAP, it would transfer much of the burden of feeding hungry Americans to the states. Since almost every state has to balance its budget every year, that will translate to either tax increases or cutbacks in other services at the state level, probably the latter. And if (or when) there is in fact a recession, the social service cuts will make it deeper and more difficult to recover from, since it will be harder to get the benefits that keep people afloat just when they need them most.
Eliminating subsidies for EV purchases
These subsidies, which were expanded under the Inflation Reduction Act, provide up to $7,500 for the purchase of an electric vehicle. But not just any EV. The subsidies were designed to spur domestic production, by mandating that only cars built in America with mostly American parts are eligible.
Removing the subsidies will make American-made EVs less attractive, which will put us further behind in the race to create the inevitable EV future, a race in which China is lapping us.
Rolling back support for green energy
Recent years have seen an unprecedented boom in clean energy, driven in critical ways by support from the US government, whose tax credits, loans, and incentives have spurred hundreds of billions of dollars in private investment in wind, solar, batteries, and other kinds of low-carbon technology. The budget bill would roll back many of those programs, with dramatic economic effects.
According to a recent report from an energy research firm, the bill passed by the House would sacrifice $1 trillion in economic activity that would have been produced over the next decade by the IRA-related investments. Factories and energy projects will close or not be built; jobs will be lost; energy prices will be higher.
The political calculation behind the IRA was that creating jobs and economic activity in red states and districts would insulate the programs from the standard GOP hostility to anything with “green” or “renewable” in its description, but that strategy appears to have failed. Republicans are literally willing to sacrifice the economies of the places they represent in order to stick it to the libs.
That’s not to mention the longer-term cost of failing to reduce emissions, which has economic effects so broad and sweeping they can be difficult to calculate with precision. What we can say is that by undoing all these climate programs, this budget will make climate change worse, which brings with it dramatic economic costs.
Increasing deficits
Budget deficits are not all that concerning if we’re using the money we spend for worthwhile goals and if the cost of borrowing is low, as it was for many years until recently. But the GOP budget fails on both counts. In particular, by adding trillions of dollars to the debt it appears to already be pushing up the interest rates bond investors demand for buying US government securities. That means we pay more for interest on the debt, and have less money for other needs.
All this only scratches the surface; other provisions that threaten our future economy abound. For instance, Republicans want to cut hundreds of billions of dollars in student loans, making it harder to go to college and increasing the burden of student debt on millions, which will limit their ability to do things like achieve economic stability and afford to buy a home. It’s still unclear how many of the mass firings and shuttering of agencies that Elon Musk’s DOGE imposed on the government will be enshrined into the budget, but those cuts served to make government less effective and the US less appealing to investors.
Everywhere else you look, the Trump administration seems determined to harm our long-term competitiveness and capacity for innovation; the attacks on universities and the dramatic rollback in federally funded research will probably put a damper on our national economic dynamism for decades to come.
It’s often said that budgets are moral documents, which is true: The decisions people with power make about what the government should spend money on are grounded in their values. When we choose to slash funding for health insurance for those with low incomes and dramatically increase funding to build detention facilities to store immigrants, we make a moral decision.
But we also make a practical decision, one that can be measured (albeit imperfectly) in dollars and cents. As a moral document, the Republican budget is an abomination, delivering largesse to the most comfortable and cruelty to the most vulnerable. As an economic plan, it could hardly be dumber.
That’s it for today
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Thank you for so clearly laying out the abomination and moral failure that is this bill. The harm that will be done to individuals is repugnant and morally indefensible and the damage that will be done to our nation and society is unforgivable and long-lasting. I'm trying hard to find any silver lining these days... It's exhausting.
Finally, work requirements—like the denial of health care, they should first be applied to Congress whose members get free healthcare without working … unless you call showboating work.