Senate Budget Battle: $5 Trillion Debt Hike and Tax Cuts on the Horizon

The Senate Budget Committee Chair Lindsey Graham, R-S.C., has released the Senate's amendment to the House budget resolution for fiscal year 2025, marking a significant step towards reaching a common budget resolution. This move is crucial as it will allow Congress to proceed with the reconciliation process, a mechanism that enables legislation to pass with a simple majority vote in the Senate, bypassing the typical 60-vote threshold required to overcome a Democratic filibuster.

The Senate amendment leaves unchanged the instruction for the House Energy and Commerce Committee to cut a minimum of $880 billion in spending. This committee has primary jurisdiction over Medicaid and other healthcare programs, making these cuts a contentious issue. The Senate budget resolution also proposes a $5 trillion increase in the debt limit, which is $1 trillion more than what was proposed in the House budget resolution. This substantial increase in the debt limit has raised concerns about long-term economic stability and investor confidence.

The Senate could vote as soon as April 2 or April 3 on whether to advance the budget resolution, which would kick off a marathon session known as “vote-a-rama” before a final vote. If the revised resolution passes the Senate, it would move to the House for consideration. This process is fraught with political maneuvering and potential roadblocks, as both chambers must agree on a final budget resolution before proceeding with the reconciliation process.

Graham, in a statement, emphasized the significance of the budget resolution, stating, “With the passage of this budget resolution, we unlock the ability for the appropriate Senate committees to fully fund our border needs for four years, provide much-needed financial relief to our military at a time of great danger, make the 2017 tax cuts permanent to energize the economy, and do what has been promised for decades: go through every line item of the budget to cut wasteful and unnecessary spending — hopefully by the trillions.”

The proposed $5 trillion increase in the debt limit is a bold move that could have far-reaching implications for the economy. The nonpartisan Committee for a Responsible Federal Budget has criticized this proposal, stating that it would set the stage for the largest deficit increase ever, three times as large as the American Rescue Plan and four times larger than the Tax Cuts and Jobs Act. This budget would increase the deficit by $5 trillion over the next decade, which would significantly add to the national debt.

The potential implications for future economic growth and investment opportunities are mixed. On one hand, permanent tax cuts could stimulate economic activity by putting more money in the hands of consumers and businesses, potentially leading to increased spending and investment. However, the increased deficit and national debt could have negative long-term effects on the economy. Higher debt levels could lead to increased interest payments, crowding out other government spending and potentially leading to higher taxes in the future. This could create uncertainty for businesses and investors, potentially dampening investment and economic growth.



The Senate GOP’s measure includes a provision that gives Budget Committee Chairman Lindsey Graham broad power to set the policy baseline. This means Republicans can assume that making Trump’s 2017 Tax Cuts and Jobs Act permanent without offsets won’t add to the deficit, even if it actually will in reality. This accounting maneuver allows for a much easier path to making the tax cuts permanent, but it comes at the cost of increasing the deficit and national debt.

In summary, the Senate's proposed $5 trillion increase in the debt limit and the push to make the 2017 tax cuts permanent could have both positive and negative effects on the economy. While it could stimulate short-term economic growth, the long-term effects of increased deficits and national debt could be detrimental to future economic growth and investment opportunities. The historical evidence of flat returns during government shutdowns suggests that investors may not be overly concerned about the short-term economic impact of government shutdowns, but the long-term effects of increased debt and deficits could be more significant.