His Treasury Secretary is taking an early victory lap over falling mortgage and bond rates, but the reason for the fall will determine whether this is a political success.
Building on Michael’s comment…Josh I wonder if you’d be willing to do a future column (soon, given some of these decisions will be made in the next month or so) on the “current law vs current policy” baseline debate. The questions it raises are very Barro-aligned, it seems to me, a long time listener/reader of yours.
First, it’d be great to get to some depth on process and legislative mechanics- what’s involved in changing scorekeeping rules in this way, overruling CBO/parliamentarian, etc? Has this sort of been done before or no? Would it be done as part of the budget resolution, or in the reconciliation bill itself, or elsewhere?
Second, what are the politics? Is this akin for some Senators to a first step to overturning the filibuster? Are House fiscal hawks dug in? Is there a political cost that’s distinct from any political cost arising from the economics?
Third, I’d love to get a smart read on the “slippery slope” arguments and how slippery the slope actually is. Can you constrain a “current policy” baseline to the tax side and not the spending side? Can you constrain it to things that were “current policy” when you made the switch (like enhanced ACA subsidies) without having it apply to new stuff (e.g. pass Medicare-for-all for one year and extend it?)
Last, the economics. Presuming you can overcome the procedural and political obstacles and get CBO to say extending expiring tax cuts doesn’t cost anything, that doesn’t actually stop the deficit from going up in the real world, right? Which, to the point of this column, has huge economic effects, with knock-on political ones.
A lot of these questions still seem unanswered/unexamined, and we seem to have roughly $4,000,000,000,000-ish hanging in the balance under the banner of a really vanilla-sounding question. Would you take it on?
It makes me feel ill to think of the budget cuts coming out of Medicaid, which isn't adequate to begin with.
I realize this is a discussion of US economic policy, and it's useful to consider that objectively in isolation. Nonetheless, I can't help but feel there will be impacts from DOGE federal employee firings, such as reduced tax collection by IRS. I also wonder what will be the economic impact ofTrump dropping our backing out of longstanding US alliances with Europe and the need for Europe to put more money into arms. We've benefitted from a long period of international stability, and it seems like that is coming to an end.
It's been reported that the GOP in Congress are planning to assume a "current policy" baseline for their reconciliation bill. I guess the markets are OK with that?
I would have liked more detail on austerity and deregulation proposed by Bessent.
My understanding is they cannot promote tax cuts without wrecking Medicare/aid programs.
Also inflation spiral driven by consumer fears is a self fulling spiral and might drive inflation high if the messaging on tariffs being inflationary continues. I just don’t see a way out of inflation for this Trump admin.
Building on Michael’s comment…Josh I wonder if you’d be willing to do a future column (soon, given some of these decisions will be made in the next month or so) on the “current law vs current policy” baseline debate. The questions it raises are very Barro-aligned, it seems to me, a long time listener/reader of yours.
First, it’d be great to get to some depth on process and legislative mechanics- what’s involved in changing scorekeeping rules in this way, overruling CBO/parliamentarian, etc? Has this sort of been done before or no? Would it be done as part of the budget resolution, or in the reconciliation bill itself, or elsewhere?
Second, what are the politics? Is this akin for some Senators to a first step to overturning the filibuster? Are House fiscal hawks dug in? Is there a political cost that’s distinct from any political cost arising from the economics?
Third, I’d love to get a smart read on the “slippery slope” arguments and how slippery the slope actually is. Can you constrain a “current policy” baseline to the tax side and not the spending side? Can you constrain it to things that were “current policy” when you made the switch (like enhanced ACA subsidies) without having it apply to new stuff (e.g. pass Medicare-for-all for one year and extend it?)
Last, the economics. Presuming you can overcome the procedural and political obstacles and get CBO to say extending expiring tax cuts doesn’t cost anything, that doesn’t actually stop the deficit from going up in the real world, right? Which, to the point of this column, has huge economic effects, with knock-on political ones.
A lot of these questions still seem unanswered/unexamined, and we seem to have roughly $4,000,000,000,000-ish hanging in the balance under the banner of a really vanilla-sounding question. Would you take it on?
Big fan of your work - keep it up!
Are they trying to drive a recession to justify low rates and expansionary fiscal policy in the form of tax cuts?
It makes me feel ill to think of the budget cuts coming out of Medicaid, which isn't adequate to begin with.
I realize this is a discussion of US economic policy, and it's useful to consider that objectively in isolation. Nonetheless, I can't help but feel there will be impacts from DOGE federal employee firings, such as reduced tax collection by IRS. I also wonder what will be the economic impact ofTrump dropping our backing out of longstanding US alliances with Europe and the need for Europe to put more money into arms. We've benefitted from a long period of international stability, and it seems like that is coming to an end.
It's been reported that the GOP in Congress are planning to assume a "current policy" baseline for their reconciliation bill. I guess the markets are OK with that?
Is there ever a case that a quick dip into a recession is beneficial?
I would have liked more detail on austerity and deregulation proposed by Bessent.
My understanding is they cannot promote tax cuts without wrecking Medicare/aid programs.
Also inflation spiral driven by consumer fears is a self fulling spiral and might drive inflation high if the messaging on tariffs being inflationary continues. I just don’t see a way out of inflation for this Trump admin.
Forgot to add, big missing piece for me was the changes in labor force due to the deportations and fear of deportations driving inflation higher.
Very helpful analysis. Thank you!