Trump's ‘magic' act: The US Senate has just made $5.8 trillion disappear

Sydney Morning Herald

a day ago

That's why the Republicans have resorted to accounting gimmickry.
Conventional congressional policy measures outcomes by what's known as 'current law baseline,' which takes into account the legislated expiry of fiscal measures.
That's why the Trump tax cuts were scheduled to expire this year, to reduce the cost that would otherwise have been factored into the Congressional Budget Office's 10-year deficit and debt projections.
Extending policies with legislated extensions requires a new law, which is why the usual accounting convention is to treat the extension as a new cost.
The Republicans, however, have decided to use a 'current policy baseline' approach, which assesses the impact on deficits and debt against current fiscal policies. On that basis, the Trump tax cuts never expire and therefore have no impact on the cost of the One Big Beautiful Bill.
That simple change in accounting transforms the cost of the One Big Beautiful Bill from a $US3.3 trillion addition to US deficits over the next decade into a $US508 billion decrease in them.
The accounting trickery is deceitful, creating the pretence that the Republicans are cutting spending while actually adding trillions of dollars to future deficits and debt while creating time bombs that future administrations will have to defuse, presumably by resorting to accounting trickery of their own.
An indication of how the Republicans are manipulating the accounting rules to obscure the actual impact of the Trump budget on debt and deficits is provided by their treatment of Trump's new tax breaks for tips, overtime, senior citizens, car loans and deductions for local and state taxes.
The 'temporary' spending measures in the bill are scheduled to expire at the end of the current Trump presidency. If they were extended indefinitely, they would add about $US1 trillion to deficits over the decade, according to the Committee for a Responsible Federal Budget.
Normally, the question of whether the One Big Beautiful Bill complied with the Senate rules would be referred to the non-partisan Senate parliamentarian, who has already ruled against the inclusion of a number of items if the bill is to comply with the reconciliation process.
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The Republicans, however, have avoided that scrutiny by giving the authority to decide the policy used for calculating the impact of the bill to the Senate Budget Committee chairman, Lindsey Graham, who said last week that he was 'the king of the numbers'.
'I'm Zeus, the budget king,' he said.
At the weekend, he said that, as budget chairman, he had decided to use current policy as the reference point for the tax cuts.
'If you use current policy, they never expire, so the policies that were created in 2017 would not end in December. They would continue. And that's a good thing for the American people, that's a good thing for the economy, because it gives you certainty,' he said.
Unsurprisingly, the Republican majority then voted to endorse Graham's decision.
The Democrats were quick to point out that using current policy as the baseline sets a precedent, one they could use to implement their own agendas – and undo Republicans' – if they regained control of Congress.
Effectively, they – or a future Republican majority – could create massive new programs, legislate their expiry in a few years to minimise their apparent impact on debt and deficits and then claim that their extension was costless, even though they could blow out deficits and debt over the longer term.
While the change in accounting policy might help protect the use of the reconciliation process, it doesn't disguise the reality that the One Big Beautiful Bill will significantly increase US deficits and debt, pushing the current federal government debt level up from $US36.2 trillion to around $US40 trillion by 2034.
That's caused some dissension among Republicans. In the Senate, two senators have already declared they'll vote against the bill and as many as eight have expressed some opposition to it.
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With the Senate version of the bill significantly more expensive that the one the House passed narrowly, even if it scrapes through the Senate there is no certainty that it will remain intact once it returns to the House, where the House Freedom Caucus of fiscal conservatives are saying that the Senate version needs major changes if it is to gain their support.
Trump has set a July 4 – Independence Day – deadline for passage of the bill, which is why the Republicans have been scrambling to try to lock in enough votes to ensure it clears the Senate and why Elon Musk, who went silent after his criticisms of the bill (and some verbal attacks on Trump) triggered an aggressive and threatening response from Trump, has re-emerged.
In posts on his social media platform, X, Musk described the spending levels of the bill as 'insane' and said the bill would increase the US debt ceiling by a record $US5 trillion. It was obvious, he said, that Americans were living in a one-party country, the 'porky pig party'.
He has a point. The accounting trickery is deceitful, creating the pretence that the Republicans are cutting spending while actually adding trillions of dollars to future deficits and debt while creating time bombs – the 'expiring' tax measures in the bill – that future administrations will have to defuse, presumably by resorting to accounting trickery of their own.
In the meantime, the debt, its cost (already running at about $US1 trillion in interest) and the volume of bonds US Treasury will have to issue into a market that's been showing signs of shallow liquidity will continue to mount, relentlessly.