Trump readies massive shift in US economy on eve of inauguration

From the moment he becomes the 47th president of the US, Donald Trump will face a series of urgent fiscal deadlines and fractious policy debates - and his decisions beginning on Monday will determine the trajectory of a strong but unpredictable US economy.

The federal government is weeks away from running out of money, setting up another high-stakes funding fight in March. Its ability to borrow more is in jeopardy, too, as the country inches close to the limit known as the debt ceiling.

And trillions of dollars in tax cuts for families and businesses are scheduled to expire in December - “the single most important economic issue of the day,” as Scott Bessent, Trump’s nominee for treasury secretary, told lawmakers last week.

“If we do not renew and extend,” he said, “then we will be facing an economic calamity.”

As he returns to the Oval Office, Trump has pitched a radical shift: He seeks sharp reductions in federal spending, deeper tax cuts, seemingly universal tariffs and sweeping deregulation. But his foremost critics, particularly Democrats, see that agenda as weighted to the rich at the expense of the poor - and carrying the potential to severely worsen the fiscal health of a nation whose finances are already in stark decline.

The stakes became apparent even before Trump’s inauguration: On Friday, congressional budget analysts found that the gap between what Washington spends and collects reached $2 trillion (R37trl) last year, paving the way for the nation’s accumulated debt to top $52trl by 2035.

Against that dire fiscal backdrop, Trump and his top aides this weekend prepared for the well-choreographed chain of events in which Biden-era officials relinquish their posts and the new president’s allies take over key agencies, while their permanent replacements await Senate confirmation.

Trump has continued to fill key administration positions: On Friday, he announced the roster of his National Economic Council, which advises on everything from artificial intelligence to workers’ rights. At many agencies, however, it remains unclear who will take the reins on an acting basis before Cabinet officials are approved.

Trump is also eyeing about 100 executive actions he could announce, including moves to impose historic tariffs, spur more oil and gas drilling, and fulfill his campaign pledge to deport millions of immigrants, according to two people with knowledge of the matter, who spoke on the condition of anonymity to reflect private deliberations.

To administer those tariffs, the president said he plans to stand up a new office - the External Revenue Service - though its exact design is unclear. Trump hopes to raise hundreds of billions of dollars from the universal duties, even as economists maintain that importers will mostly pass them along to consumers, raising prices while upsetting trillions of dollars in global commerce.

But Democratic critics have already started to assail Trump and his allies, raising alarm that his steepest cuts could decimate federal safety-net programs - including food stamps, low-income health insurance coverage under Medicaid and other forms of welfare. They point to analyses that show Trump’s universal tariff plans, meanwhile, could disproportionately hurt lower-income Americans.

“Republicans are surveying their members to see how much of Americans’ health care they’re willing to cut in exchange for tax cuts for billionaires,” said Lindsay Owens, an executive director of the Groundwork Collaborative, a left-leaning think tank. “Trump hasn’t even been sworn in, and they’re already betraying their promises to the working class.”

The schisms were on full display beginning Wednesday, as the first wave of Trump’s nominees for key economic posts testified to the Senate. Each of the president-elect’s picks - Bessent, the nominee for treasury secretary; Russell Vought, the presumptive White House budget director; and Scott Turner, tapped to oversee federal housing programs - appeared to glide toward confirmation, even as they tussled with Democrats at times over their past records and divergent political views.

Repeatedly, the nominees emphasised the administration’s commitment to cost-cutting across the government, except defence, raising the odds that Trump’s cuts may predominantly fall on programs that offer college aid, combat climate change, protect workers and provide health insurance to the poor.

“We haven’t seen progress in the area of dealing with our fiscal situation, and that has to change, or that’s going to have profound impact on the next generation,” Vought told the Senate Homeland Security and Governmental Affairs Committee last week.

The US government is funded only into March, under a heavily contested deal - nearly scuttled by Trump’s billionaire ally Elon Musk - between House Speaker Mike Johnson and outgoing Democratic leaders reached last year. Vought declined to offer specifics about the new budget he is preparing on Trump’s behalf, or the extent to which he would advise the incoming president to use a controversial authority, known as impoundment, to override lawmakers and cancel spending he opposes.

“The president has run on the issue of impoundment … and we’ll be developing our approach to this issue once his administration is in office,” Vought said.

Some Democratic lawmakers and legal experts believe such a move would be unconstitutional, and they repeatedly faulted Vought at his confirmation hearing for failing to offer specifics.

“You’re saying you’re just going to defy the courts … you are simply going to take the law into your own hands,” responded Senator Richard Blumenthal, adding that he was “astonished and aghast” at the administration’s view.

As the parties haggle over spending, they also must confront a fast-approaching decision about the debt ceiling, which determines the maximum amount that the US may borrow to pay for previously enacted spending. Late Friday, the outgoing Biden administration said it had started taking special accounting measures to free up cash to pay creditors and prevent a breach, buying more time for lawmakers to work with Trump on a deal that would avert a catastrophic default.

Anticipating a bitter debate, Trump tried but failed in the waning hours of last year to orchestrate a resolution to the debt ceiling so that it did not sap time and political bandwidth early in his term. He later endorsed repealing the concept altogether, in a move that surprised yet delighted Democrats who have long sought to abolish it.

But Bessent, the nominee for treasury secretary, signalled at his own confirmation hearing last week that the incoming administration might not be so quick to eliminate the borrowing cap: He initially told lawmakers last week he would order a “survey of market participants” on its implications, before saying he would follow Trump’s orders.

Throughout his testimony, Bessent sought to mount a vigorous defence of the broader Trump agenda, warning that millions of Americans could see a tax increase unless Congress extends key provisions from the 2017 law set to expire at the end of the year.

The tax law did lower rates for most income brackets, though analyses by the Tax Policy Centre and other groups have found they primarily benefited the wealthiest earners and firms. Congress’s nonpartisan bookkeepers also found in November that allowing the tax cuts to expire would have a negligible effect on the nation’s economy. In fact, the Congressional Budget Office said, higher tax revenue could lead to greater private-sector investment by reducing federal debt.

Renewing the cuts is tricky, because they could add to the nation’s debt even as Republicans insist that they are serious about reducing it.

The potentially sky-high price tag prompted some in the party to begin quietly circulating controversial ideas to pay for it. The early range of options - obtained by The Washington Post - includes more than $1trl in potential cuts to Medicaid, the health insurance program for the poor, as well as close to $800 billion from repealing tax credits meant to spur clean energy investments.

Other ideas on the list - such as cuts to scholarship benefits and a scrapping of a deduction on mortgage interest claimed by homeowners - could prove politically explosive as well.

THE WASHINGTON POST