Next President Faces Fiscal Struggle in 2025 Over Debt, Deficits and Taxes

Election day has arrived, and American voters are set to determine whether former President Trump or Vice President Harris will win the presidency, with the winner facing a series of fiscal policy challenges to address when they take office next year.

The winner of the presidential election along with the Democratic or Republican majorities in the House and Senate will face a debate over the national debt, the budget ceilings. federal spending as well as expiring tax cuts that will keep fiscal policy in focus throughout 2025.

The first fiscal policy issue to erupt will be the debt limit, which Congress suspended from spring 2023 until January 1, 2025. The move means the federal government can take on debt without facing a ceiling until the suspension ends at the beginning of January. .

Once the debt limit is reactivated, the Treasury Department will have to begin using its “extraordinary measures” to finance government obligations and avoid a debt default. It’s not certain how long these extraordinary measures will last, though they typically provide a buffer of several months before they run out — which is ultimately the deadline for Congress to raise or re-suspend the debt limit.

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During the last debt limit impasse, the extraordinary measures began on January 19, and the nonpartisan Congressional Budget Office signaled a few months later that they would run out in early June, at which point the Treasury Department would have been unable to fulfill the obligations of the federal government.

The next president and Congressional leadership in both Chamber and Senate it will also be tasked with negotiating whether the budget caps on discretionary spending — which is essentially all federal spending except for Social Security, Medicare and debt interest payments — should be extended or reformed.

The Fiscal Responsibility Act of 2023which was passed in May of that year and also suspended the debt limit, capped increases in federal spending on defense and non-defense discretionary items. However, those expenditure ceilings is set to expire at the end of fiscal year 2025 at the end of September, meaning a debate over the debt limit in the spring may overlap with a discussion on spending levels.

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Another element of fiscal policy that will be a key point of debate in 2025 is the expiration of the tax cuts and provisions of The Tax Cuts and Jobs Act (TCJA) – the 2017 tax law that Trump and congressional Republicans passed using the budget reconciliation process. Due to budget rules governing the impact of reconciliation bills on long-term deficits, certain policies are enacted for a limited time for compliance purposes.

Among the major provisions of the tax law set to expire at the end of 2025 are modified tax brackets that were reduced at certain income levels and the standard deduction that was nearly doubled from $6,500 to $12,000 for individual taxpayers and from $13,000 to $24,000. for married couples filing joint returns.

The child tax credit was also doubled by the TCJA, while the deduction for state and local taxes (SALT) was capped at $10,000 — both of which will also expire at the end of 2025.

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The cost of these measures in terms of lost tax revenue and the impact of potential extension or revision on them American householdsbusinesses and the broader economy are also poised to factor in the broader debate about federal spending and the level of debt that will take place next year.

That dynamic is prompting policymakers to seize the opportunity to put America’s long-term fiscal health at the center of the debate.

“We’re on track to borrow an astounding $2 trillion next year,” Maya MacGuineas, chairwoman of the nonpartisan Committee for a Responsible Federal Budget (CRFB), told FOX Business. “However, there is a very real risk that MPs will borrow even more.”

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“As they navigate the debt ceiling, expiring tax cuts, FRA caps and the temptation to increase spending, they would be wise to remember that every new dollar we borrow hurts the economy, weakens our national security and leaves our children and worse. The 2025 fiscal election will have consequences for years to come,” added MacGuineas.