What Trump’s next 100 days will mean for taxes, markets and your wallet
President Donald Trump’s first 100 days in office have been a whirlwind of executive activity — as he has set in motion the firings of tens of thousands of federal workers, all but ended U.S. foreign aid and sent global markets reeling with steep on-again, off-again tariffs.
But at least one of the president’s plans to leave a lasting mark on the American economy and government will require the support of a bitterly and evenly divided Congress.
During the next three months, Washington will turn its attention to Capitol Hill, where Republicans — holding historically slim majorities in both the House of Representatives and the Senate — are attempting to cobble together legislation that would make permanent the lower individual tax rates in Trump’s 2017 Tax Cuts and Jobs Act. The bill could even include new giveaways the president campaigned on, including eliminating taxes on tips, Social Security income and overtime pay, and making car interest payments tax deductible.
The tax cuts were arguably the biggest win for Republicans in Trump’s first term, and vowing to make them permanent was a centerpiece of his campaign. Now, with most of the White House’s proposed tariff regime paused for 90 days, the tax package will likely be Republican policymakers’ focus. Still, given the cuts’ steep cost to the government and some GOP lawmakers’ resistance to increased deficits, they could face an uphill battle.
Mark Prater, a former Republican chief tax counsel and deputy staff director for the Senate Finance Committee, told MarketWatch that including all the features of Trump’s wish list is going to be very difficult.
The House and Senate budget resolutions will allow for between $4.8 trillion and $5.3 trillion to fund the president’s proposed cuts.
“That looks like a big number, and it is,” Prater, a managing director at PwC, said. “But you have to realize that most of that is already spoken for in terms of just extending the individual tax cuts.”
Extending the expired provisions for individuals, estates and pass-through businesses will cost as much as $4.6 trillion, when taking into account the added growth to the economy encouraged by lower taxes and the added interest expense as a result of new debt, according to a Tax Foundation analysis.
Racking up Uncle Sam’s credit card
The Senate and House have both passed separate budget resolutions that must be reconciled at some point before a tax bill can pass both houses of Congress and end up on Trump’s desk to be signed into law.
The two chambers have passed competing budget blueprints that will shape how much debt Congress can rack up to pay for Trump’s proposed tax cuts. The House plan calls for $2 trillion in spending cuts to offset the $4.8 trillion in tax cuts it’s aiming for. The Senate’s resolution would allow for more than double the borrowing, $5.8 trillion, while demanding only $4 billion in spending cuts, according to an analysis by the Committee for a Responsible Federal Budget.
By 2055, the Senate resolution could allow up to $60 trillion to be added to the nation’s debt load, pushing the U.S. debt above 230% of GDP. Budget experts warn this type of deficit spending could fuel a debt spiral, driving up the interest rates Americans pay on home mortgages and car loans, while threatening future economic growth.
“There’s a lot of pressure on Congress to extend taxes and not as much pressure to deal with spending,” said Kyle Pomerleau, tax-policy expert at the conservative American Enterprise Institute.
Painful budget cuts
The Republican House leadership, which manages a large contingent of lawmakers intent on deep spending cuts to offset some of these tax cuts, has balked at the Senate plan.
House Budget Committee Chairman Jodey Arrington of Texas called the Senate plan “unserious and disappointing,” setting up a showdown between the two chambers in the next couple of months.
Many in the House want to sharply reduce spending on Medicaid, by upwards of about $600 billion, to help offset the tax cuts, but it’s not clear there are majorities in either chamber to do this.
On April 14, 12 House Republicans sent a letter to House leadership opposing “any reduction in Medicaid coverage for vulnerable populations,” though they do support measures to make the program more efficient. House Republicans can only afford to lose roughly three votes on the measure, absent Democratic support.
Spencer Perlman, director of healthcare-policy research at Veda Partners, predicted in a recent note to clients that when the dust settles, Republicans will end up stomaching $400 billion in cuts to Medicaid over 10 years.
These will include reducing benefits for residents of Washington, D.C.; adding work requirements for able-bodied, nonelderly adults without dependents; and repealing various Biden administration regulatory policies that made the program more generous.
Another option being floated by some House Republicans, and even Trump, is raising taxes on the wealthy — an idea that’s been anathema to the GOP for more than 30 years.
Trump told Time magazine Friday that he “wouldn’t mind having a tax increase,” but that he isn’t willing to pay the political price for a tax hike on the wealthy. This stance may have more to do with Republican ideological aversion to tax hikes of any kind rather than politics, as tax increases for the rich poll well.
What it means for your wallet
The ultimate shape of the tax bill, combined with the steep new tariffs on imported goods that Trump has implemented, will have a major impact on many Americans’ financial health.
An analysis by the left-leaning Center on Budget and Policy Priorities (CBPP) found that a combination of extending the 2017 tax cuts, enacting the Medicaid cuts imagined by the House plan and imposing record-high tariffs would reduce incomes for households in the bottom 60% by an average of $1,870 — or the equivalent of four months of groceries for families on the bottom half of the income spectrum.
For families in the bottom 20%, the average loss climbs to $2,270, or more than 10% of their income.
At the same time, households in the top 1% would receive a net gain of $25,500, thanks to the lopsided structure of the tax cuts, the fact that they don’t use programs like Medicaid, and that rich families spend a much lower share of their income on imported goods.
“For most Americans, the tariffs lead to a reduction in income that is larger than extending the 2017 tax cuts,” Brendan Duke, a former Democratic budget staffer and senior director of budget policy at CBPP, told MarketWatch.
Another thorny issue is the desire to raise the cap on state and local tax deductions, aka the SALT cap, which remains a priority for several House Republicans in high-tax states.
The 2017 tax bill capped the amount of state and local taxes that filers can deduct from their federal taxes — a provision that’s been a source of frustration for taxpayers, including wealthy ones, in high-tax states. While Senate Republicans have shown little appetite to adjust the SALT cap, a modest adjustment appears increasingly likely.
“I’ve come around to think that there probably will be changes on the SALT cap,” said Brian Gardner, chief Washington policy strategist at Stifel. He added that Republicans may also seek to limit the deficit impact of other new provisions, such as tax breaks for tips and overtime, by applying income caps or other restrictions.
What it means for markets
The legislation is also expected to include a must-pass increase to the federal debt ceiling, adding further urgency to an already complex package.
Analysts expect the Treasury Department could exhaust its borrowing authority as early as July, meaning a failure to reach a deal by that time could trigger financial-market volatility or even a funding crisis.
“They want to put it as part of the reconciliation package,” Gardner said. “Because if they do it outside reconciliation, then you’re dealing with concessions to Democrats, and that’s not a position they want to be in.”
Republicans hope that their tax cut will provide much needed stimulus for financial markets and a U.S. economy that is struggling with the effects of new tariffs.
AEI’s Pomerleau, however, said that we shouldn’t expect much of a stimulus effect from extending the 2017 tax cuts, since these cuts are already on the books and won’t add new money to the economy.
The added borrowing, however, could lead to higher interest rates and lower demand for U.S. Treasury bonds TMUBMUSD10Y 4.260% because of the much different economic environment the U.S. is in today compared to 2017, when the tax cuts were first enacted.
“We were still recovering from the Great Recession in 2017 and interest rates were low in part because demand was still depressed,” Pomerleau said.
“Fast-forward to today, and that’s not the case. The federal government really pushed the envelope on stimulus during COVID, and it pushed demand to a point where it outpaced the productive capacity of the economy and we saw inflation,” he added.
That means piling more debt on top of the U.S.’s already high levels will likely drive up interest rates, depress foreign demand for U.S. bonds and leave Americans paying higher rates for products like mortgages and car loans.
“If Congress ends up borrowing another $5 trillion, that’s a lot of new supply for debt at a time when demand for Treasurys is waning,” Pomerleau said. “You may see interest rates rise for that reason.”