The U.S. budget battle. The Most crucial Test Before Republicans

In the United States legislature there is simply a fight for the form of the national budget for the fiscal year 2025. Donald Trump's declared goal is to balance and reduce public debt. The approach includes crucial cuts in budgetary expenditure, as well as increases in revenue, including by expanding customs duties and stimulating economical growth. In order to accomplish the announced scale of cuts in revenue, it is likely to be essential to intervene in the financing of wellness care or social programmes, which could have serious electoral consequences for the Republican Party.

Despite the cuts announced by the Secretary of defence in Pentagon spending, it seems that defence spending could shortly increase, especially as regards modernisation. Savings will, on the another hand, reduce American influences in the global dimension, as demonstrated by the elimination of most USAID programs or the effort to extinguish media like Voice of America. The fiscal measures taken by the administration are intended not only to improve the budget situation of the United States, but besides to rebuild their economical model and changes in global trade. A drastic increase in customs barriers, announced by the president on 2 April, can play a peculiar role.

Cuts in taxes and expenditure

According to Trump, the future of the country and subsequent generations of Americans depends on the balance of budget as shortly as possible. The forecasts of the US Budget Bureau of legislature presume that in fiscal year 2024 the deficit was $1.83 trillion (6.6% of GDP), and the public debt exceeded $35.2 trillion (122% of GDP)^[1]. The cost of debt service now accounts for 8% of the national government's yearly expenditure. If there are no extremist changes, the debt will grow rapidly due to costs arising from statutory obligations (mainly healthcare, social security and another social programmes), as well as increasingly costly debt service.

According to the administration, the measurement to reduce the deficit is to increase gross to the budget as a consequence of the increase in customs duties and, in the future, the economical growth resulting from the reindustrialisation of the USA, the increase in tariffs is to service as an incentive for the relocation of production to the territory of that country. An additional incentive is to be provided by favourable fiscal conditions – the form of the extension of the taxation cuts introduced by Trump's squad in 2017 – as well as deregulation and low energy prices (the consequence of administrative facilitations in the operation of American oil and gas deposits). The strategy is to be complemented by fresh solutions in the form of gold cards (giving the right to permanent residence and possibly citizenship to people who invest $5 million in the country) or the Sovereignty Fund, allowing to invest state assets.

At the same time, the current authorities are seeking to introduce a $1 trillion simplification in national spending. The way to reduce them is to reduce administrative employment and budget cuts. This task was entrusted by the president to the Department of Government Performance (DOGE), a recently formed structure led by Elon Musk. Despite DOGE's aggressive actions in the first weeks of the fresh team's office, Musk did not manage to get close to the expected level of spending simplification (about $1 trillion) – according to the calculations of their own department, they are presently expected to scope around 130 billion dollars^[2], although in fact this sum may be lower. In order to increase it respective times, changes at the statutory level will be necessary, but their implementation may prove to be complicated and politically costly, as it may mean a simplification in spending on wellness care, social programmes or defence.

Balanced budget will make it hard to implement Trump's electoral promise to extend the taxation cuts introduced during his first word of office, which expire at the end of this year. The 2017 Act primarily reduced income taxation on individuals and reduced the corporate taxation rate from 35% to 21%. The president would like to further reduce corporate income tax, up to 15% (to make investing in the US more profitable), as well as to introduce exceptions to tips or overtime. The cost of these proposals is estimated at least $5 trillion over the next decade^[3].

Republicans want more control

Due to the instigation of the national budget before the start of the fiscal year 2025 (i.e. 1 October 2024), at the time Trump took over the office, there was a budgetary make-up (see Annex 2), which was passed at the end of December 2024, which expired on 14 March this year. The Republicans managed to pass a fresh make-up, extending government backing until the end of the current fiscal year (30 September). It is based on the budget of the erstwhile year, but there have been respective corrections, expanding defence spending by about $6 billion, reducing others by about $13 billion^[4] (see Annex 2). However, the paper does not contain extremist expenditure constraints that Musk had previously advocated, but cuts may happen in the close future.

Trump had already demonstrated his will to challenge the decisions of the U.S. legislature and extend the powers of executive authority by freezing funds granted by the legislative authority for a circumstantial intent (e.g. abroad aid), although specified actions were prohibited by the 1974 Act. The president can besides make usage of the already existing options and submit to legislature a proposal to reduce expenditure resulting from already approved budget laws. It must be adopted by the advocacy committees and then both chambers, but in the Senate, a specified majority is adequate to do so – which means that Republicans can introduce specified cuts without agreement with Democrats. specified a variant was discussed during Musk's gathering with Republican Senators in early March.

Parallel to the work on the Republican Party's budget make-up, it has engaged in another process to let it to implement budgetary changes in the second half of this fiscal year as part of the alleged conciliation. The Reconciliation Act can be passed by the legislature by simple majority – unlike the standard procedure, requiring a minimum of 60 votes, meaning that a cross-party agreement must be reached. Reconcilation can so be utilized to implement the most crucial elements of the political agenda of the administration. In this case, the Act (or the Act) of Reconciliation would concern immigration (measures essential for the deportation action and sealing the border), energy and defence (purchase of arms and military equipment for the Navy and air force). In addition, the process is intended to cover the taxation issues mentioned above.

In addition, Republicans inactive gotta solve the debt limit problem. In the United States, there is simply a statutory ceiling beyond which the state cannot proceed to indebt, even if this would mean inability to meet the commitments already made. Therefore, in order to avoid insolvency, legislature regularly raised it. In 2023, the US reached a debt limit of $31.4 trillion, and the Republican majority in the home of Representatives refused to agree to increase it. As a result, the compromise was suspended until 1 January 2025. The limit is now in force again – although at a level that takes into account the debt that has risen during its freezing – and if legislature does not rise it, there will be a hazard of insolvency in the coming months. Raising it is in turn highly unpopular among fiscal conservatives in the Republican Party, and it is hard to reconcile it with the communicative of budget balance and expenditure cuts.

Consequences for internal, abroad and safety policy

This year's budgetary process is of paramount importance for Trump's full word of office. Republicans realise that next year there will be a run before the half-election scheduled for November 2026. These frequently bring weakness to the organization whose typical sits in the White House, so their situation in the second half of the word may be worse than today. The upcoming elections may besides stiffen the position of any congressmen and senators against the president's expectations. This in turn means that the most hard elements of the political programme must be implemented in 2025.

A tiny advantage in the home of Representatives and the absence of 60 votes in the Senate, however, condemns Republicans to search alternate ways to carry out delicate changes – specified as reconcilation. The implementation of this plan will entail the request to align it between the home and the Senate, as well as to satisfy the aspirations of various factions in the power camp. The possible success in implementing crucial reductions in compulsory expenditure, especially for wellness care for the poorest Americans, may bring political costs to Republicans – the specified suggestions for cuts in the Medicaid programme (providing wellness care for the little prosperous people) have caused a very negative consequence from voters.

An tremendous challenge for Trump's administration will be trying to redesign US trade relations, which is simply a key component of the President's political agenda. On 2 April, he announced an increase in customs duties on imported products of at least 10%, with Washington following the rule of reciprocity and imposing importantly higher charges on states that he believes apply unfair barriers to American exports. As a result, the average rate of duties charged by the United States jumped from 2.5% last year to 23% – the level not recorded there since the second decade of the 20th century. It is expected that the current squad will keep a protectionist course, although duties may be subject to future negotiations. It can besides be considered likely that they would be further increased in consequence to the trade partners' retaliation duties.

The consequences of budget cuts will besides be to reduce the anticipation of US impact by means of soft power. The first weeks of the fresh administration resulted in the de facto liquidation of the global improvement Agency (USAID), liable for most of the existing abroad aid coming from the country. In early March, the Secretary of State Marco Rubio announced that 83% of the programmes financed through this body would be cancelled and that work for the others would be taken over by the State Department. The authorities have besides attempted to drastically reduce the activities of the Global Media Agency (USAGM), which could mean the end of the activities of entities specified as Voice of America and Radio Free Europe. This, however, was stopped by the court until the case was resolved. Trump besides plans to importantly reduce the budget and staffing of the State Department. There have been reports of possible reductions in embassy and consulate personnel, or even closure of any facilities. This is the consequence not only of the search for savings, but besides of the fresh team's belief in the usage of tools from the area in the past soft power to advance the left-wing agenda in the world.

As far as the Department of defence is concerned, in February, defence Secretary Pete Hegseth announced cuts in the reaching 8% yearly defence spending budget. Most likely, however, the aim is to shift the resources saved in this way to objectives that correspond to the priorities of the administration. Hegseth has already cancelled programs worth a full of about $800 million, including ship decarbonisation, with increased diversity in the navy or besides costly civilian personnel management software^[5]. Both the fresh budgetary make-up and the proposals made in connection with the reconcilation propose that the efforts on defence are likely to be raised, which will let for faster method modernisation of the aircraft, naval and atomic arsenals.

ANNEX 1. United States budget deficit and public debt

In fiscal year 2024 national government spending amounted to $6.75 trillion, and income – 4.91 trillion. Thus the deficit reached $1.83 trillion. The last time the US recorded a budget surplus in 2001. Since then, a deficit has persisted, which evidence – $3.13 trillion – recorded in 2020. In the 1920s, it was not yet possible to bring it down to little than $1 trillion^[6].

The U.S. public debt has reached unlisted levels since the end of planet War II (in 1946 it amounted to 119% of GDP). The current fast increase in debt began in the 1980s, including reduced taxation revenues and defence spending. This trend was temporarily broken during Bill Clinton's second word due to the surpluses noted at the time. Debt began to emergence again as a consequence of US wars in Afghanistan and Iraq, especially the financial crisis and recession after 2008. The situation improved after 2012, but the request to stimulate the economy due to the COVID-19 pandemic accelerated the state's debt process again.

ANNEX 2. United States national budget and its approval process

Chart. United States national budget in fiscal year 2024

Source: Congressional Budget Office.

Expenditure in the American budget is divided into compulsory and discretionary. The first group includes those arising straight from previously passed laws, primarily social security (pensions and pensions), wellness care and another social programmes and their form is not subject to change in the yearly budgetary process. The second group represents just over a 4th of the budget. About half of the discretion spending is defence spending. The second half is liable for another areas of state activity: education, transport and environmental protection.

Figure 2. U.S. budget process

Source: The national budget process, usa.gov.

The fiscal year in the United States lasts from 1 October to 30 September. The 12 budget laws are almost never passed within the time limit, so to facilitate the legislative process, respective were frequently voted in a single package (so-called omnibus). Despite this, work on the budget was seldom completed before the start of the fresh taxation year, so it became common practice to make budgetary makeshifts, extending government backing by respective months or even until the end of the taxation year. Insufferable in time makeover results in government closure (government shutdown), i.e. limiting the activities of national institutions to an absolute minimum. In the last 2 decades, the threat of specified developments has been repeatedly utilized as an component of force in interparty negotiations.