The Republicans' fatal divisions are pushing America into debt disaster

Telegraph

20 hours ago

Republicans in Washington are labouring to produce a budget bill for President Trump, but as the Senate vote passing the bill showed, they have narrow margins in Congress and there are no Democrats willing to cross the aisle. And the process is not over yet. Any small group of four or five Republican dissidents still has enormous power to derail the process. That means they have leverage to demand changes.
Since politicians on Capitol Hill play that game all the time, this is not a surprise. But the challenge for the Republican leadership is that their party is now profoundly divided, bordering on ideologically incoherent.
Some conservative Republicans believe in Reagan-style fiscal restraint, for instance. They want a smaller government and declining deficits. But this puts them at odds with Trump-style Republicans who are explicitly opposed to reforming entitlements and seemingly don't care about ever-increasing levels of red ink.
This division has not killed the bill. At least not yet. But there are still potential stumbling blocks ahead. The House and Senate have different versions of the Big Beautiful Bill, so this means a conference committee will be needed to develop a unified version. Yet the compromises required to create that unified version may cause some Republicans to revolt.
To make matters more interesting, the division between Reaganites and Trumpies is not the only relevant split. There are other blocs of Republican lawmakers who might throw sand in the gears.
The SALT deduction – a few Republicans from high-tax states claim they won't vote for any bill unless there is a big increase in the federal deduction for state and local taxes. Most Republicans dislike that loophole since it subsidises wasteful spending in states like New York and California, so the unanswered question is whether an increase in the deduction gains votes from a small group of Republicans without losing votes from the rest of the party.
Green-energy pork – Republicans unanimously voted against Joe Biden's preposterously misnamed Inflation Reduction Act, a law that included all sorts of special subsidies for wind and solar energy. Unfortunately, now that those subsidies exist, the recipients have a big incentive to lobby in favour of keeping them. Many of those handouts go to projects in Republican states and districts, leading some Republicans to assert they will oppose the Big Beautiful Bill if the green-energy gravy train gets derailed. Once again, this creates a challenge for GOP leaders, since retaining too many of the subsidies may cause fiscal conservatives to withdraw support.
Medicaid money laundering – America's main government-run health programme for poor people is supposed to be a joint responsibility for the central government and state governments. Over time, however, states have figured out how to shift ever-greater shares of the cost on to the federal taxpayers. One of the dodgiest tricks is for states to levy taxes on health providers, which triggers larger handouts from Washington. The health providers, such as hospitals, do not object to this scam since they get the additional federal money. Most Republicans want to end this farce, but a few GOP lawmakers want to curry favour with hospital lobbyists.
The Republicans who want more spending for these three areas are not Reagan conservatives. For the most part, they also are not Trumpian populists. Instead, they are best described as old-fashioned transactional politicians. Their votes go to the highest bidder/biggest campaign contributors.
But they also face pressure to conform with other Republicans. And they almost certainly want to extend the 2017 individual tax cuts (which will expire at the end of the year if the Big Beautiful Bill goes down in flames). Last, but not least, they don't want to get on Trump's bad side since it might mean a serious primary challenge during the next election cycle.
So the bottom line is that the Republican leadership – and the White House – has the ability to twist arms. As such, the safest prediction is that all these conflicts and divisions somehow will be resolved and Trump will have a victory.
But it may be a Pyrrhic Victory in that America is probably stumbling toward some sort of fiscal crisis. Simply stated, it is unsustainable to have the burden of government spending grow faster than the private sector for an extended period of time. Even if a crisis can be avoided, that type of fiscal irresponsibility eventually will mean higher taxes, ruinous debt, or inflation. Perhaps all three.
Unless, by some miracle, there's a Javier Milei in America's future.