As Washington prepares for the incoming president and Congress to take office, the budget has emerged as a topic of renewed focus. This is long overdue: In recent years, fiscal negligence has become so embedded in federal policymaking that past methods for reducing the deficit have been rendered ineffective. It is no surprise that many people, of varying political persuasions, are eager to get our fiscal house in order. We need a new approach.
How did we get to this point? A dramatic shift in spending toward programs established in permanent law, such as Medicare and Social Security, has complicated budget control efforts. They are no longer as straightforward as simply reducing annual appropriations. Other challenges include skyrocketing interest costs on the national debt, a growing incidence and severity of emergencies, and last—but surely not least—a failure of tax revenues to keep pace with spending,
A range of budgetary matters are already demanding the attention of lawmakers. Those include: 1) providing full funding for the fiscal year that started in October; 2) increasing the debt ceiling to allow the government to continue to borrow in the new year; and 3) extending and possibly expanding Trump-era tax cuts set to expire in 2025. Other near-term activities include border security funding and potential spending cuts recommended by Elon Musk and Vivek Ramaswamy’s DOGE advisory group.
As urgent as those actions may be, they will not, however, remedy the dire U.S. fiscal condition or fix our broken budget process. As I wrote in a previous post on Forbes.com, the fact that annual interest payments on our national debt now exceed the entire Department of Defense’s budget indicates the fundamental dysfunction of the federal budget process. This issue will not be solved by a one-time cut. What is needed is reform at the foundational level.
The Rise Of Trump-Based Budgeting
While the Trump administration’s precise fiscal priorities remain under development, there is no shortage of opportunities to adopt new spending and tax policies, as well as new budget concepts and processes. That said, efforts to reign in deficits and put the nation on a sustainable fiscal path will require enormous political will and long-term commitment from officials at the White House and on Capitol Hill.
Some clues have already been dropped about the direction of fiscal matters. Those are extrapolated primarily from campaign promises (tax cuts), impromptu rally declarations (“at least $2 trillion” in spending cuts), writings of those expected to join the administration (Project 2025), and budgetary priorities expressed during Trump’s first term (health care reform).
With those inputs, we can begin to form a clearer view of what might be considered Trump-based budgeting:
Tax cuts. The administration will likely seek broad tax reductions to extend the tax cuts Trump pushed through Congress in 2017 and follow through on campaign promises to eliminate taxes on income from tips, social security, and overtime.
DOGE. Trump has asked outside advisors Musk and Ramaswamy to identify ways to improve government efficiency and cut spending. In an essay published in The Wall Street Journal, the two business leaders stated their desire to slash costs through executive orders rather than legislative action. They said they intend to improve personnel and procurement management and reevaluate programs that have been funded but not formally authorized. They also concur with the incoming president’s view that statutory prohibitions against impoundment are unconstitutional. Given that Congress closely guards its budgeting powers, at least some of these efforts may prove difficult to accomplish without engaging the formal legislative process.
Impoundment. The Constitution specifies the power of the purse is vested in Congress. If the president acts unilaterally to withhold from expenditure funds lawfully provided, those actions could be considered impoundment—a practice prohibited by law. As William H. Rehnquist penned in a memorandum on the topic while serving at the U.S. Department of Justice in 1969: ‘‘it seems an anomalous proposition that because the Executive branch is bound to execute the laws, it is free to decline to execute them.” That point was made even before a law was passed in 1974 making clear the president cannot impound funds. Impoundment effectively grants a line-item veto to the president, a power deemed unconstitutional by the Supreme Court in 1998.
Project 2025. Although Trump disavowed this document during the campaign, one of its architects has been named to head the White House budget office. The plan contains extensive policy and operational reforms that reimagine and centralize government power within the executive branch. Proposed actions involve strengthening the president’s authority by decreasing the independence of certain agencies; eliminating protections for thousands of civil servants; advancing policies to promote a broad range of conservative views; and ending Diversity, Equity, and Inclusion programs. While controversial, many of these proposals would lead to less spending, though the most significant savers—such as reconfiguring or eliminating agencies—would require Congressional involvement and approval.
Zero-based budgeting (ZBB). The incoming administration has made several allusions to the use of ZBB, which theoretically allows the government to clean the slate and determine which activities to fund versus simply adopting last year’s funding level, adjusting for inflation, and budgeting from there. ZBB is a complex, data-driven budgeting process. While ZBB could enhance the use of evidence in spending decisions, its application often entails intensive, multi-year efforts—reviewing every expenditure at the start of each budget cycle—and is not ideally suited for time-sensitive downsizing efforts.
Trump 45. The United States had a deficit of $3 trillion in Trump’s last year in office. Much of the debt incurred during his presidency resulted from actions beyond his immediate control, including a swelling retirement wave of boomers, which placed stress on the Social Security and Medicare trust funds. The global COVID-19 pandemic also required a huge fiscal response. President Trump did regularly propose budgets with significant cost savings, but they relied on a narrow set of specific proposals, such as repealing and replacing Obamacare and undefined reductions to non-defense discretionary spending. It is hard to draw lessons from that experience to forecast what might happen in his new presidency.
How this all comes out in the wash is anyone’s guess. But it’s safe to assume tax cuts will be much easier to accomplish than spending reductions. With the president’s party controlling both chambers of Congress, it remains an open question whether policymakers will address the most stubborn structural issues plaguing the country’s fiscal condition.