The life of an aging public affairs consultant has a certain rhythm.
Like many men of my generation, I wake up early – of course – but for me it is typically to an uninterrupted flow of updates and social media posts on what may – or may not – be happening on Pennsylvania Avenue.
Searching for the stimulus only the second cup of coffee provides and tuning into Bloomberg News on the TV, I get to do a first ‘quality control’ check on those updates – what are the markets saying.
More often than not, despite the hyperbole of the original poster or causes they represent, the sky is neither falling in, nor a bright golden day dawning. The early trading key indicators are somnolent, up a tickle, down a touch. A healthy amount of world-weariness and a slight-greying around the temples tends to suppress the more youthful urge to add to the exuberance or feed the panic.
A quick browse of the online papers and I can then chat with clients, draft notes, or join zoom calls to provide a measured and reasonable response to whatever issue or concern is troubling the CEO, the board, investor relations or government affairs teams and corporate lawyers.
And because of the time difference, all this before lunch.
But it isn’t always so.
As I’ve reported in this blog before, in the little more than 120 days since Trump’s new administration reclaimed the keys to number 1600 Pennsylvania Avenue, much has occurred.
In those few months much has been written about stock market collapses and bounce backs, the US economy has been downgraded, the dollar wobbled, bond traders trembled, mass firings and resignations in the name of efficiency, the abolition of entire swathes of government, fights picked with world leaders and trade wars started, halted, scaled back and in some cases abandoned.
And all this because hundreds of executive orders were fired off overnight on social media, despite no new legislation making its way into or near the Capitol Building at the other-end of Pennsylvania Ave.
Then, over the weekend, it all changed.
The first version of the mammoth budget bill squeaked over the line in the House of Representatives by a solitary vote, sending it on its way towards Senate, and a labyrinth of hearings, amendments and committees.
It is at this point that all of Trump’s noises and utterings get real. That’s not to say the first 120 days weren’t without consequence, they have sown chaos and uncertainty, but now things are about to get seriously real.
‘I hear the noise, I hear the shouting, but what is going on?’ – I’m asked daily.
My job is to try and decode it, clarify the rules, and explain how the game is won.
When the President started his second term, he was committed to extending the tax cuts he had introduced during his first term. Those tax cuts doubled standard deductions on income tax, reduced tax rates and raised thresholds, cut corporation tax from 35% to 21%, and capped State and Local Tax deductions at $10,000 which hit wealthy residents in high tax states like New York, New Jersey and California.
Tax cuts are popular. Since 2017, 94% of Americans have seen their taxes reduced. Vote winner. Extending them seems to make political sense.
For good measure Trump has also peppered in some additional ‘quality blue-collar vote catchers’ like ‘no tax on tips’, ‘no tax on overtime’ and ‘no tax on social security’. Hard not to like that even if the amount of tax a waitress, a valet, or a state pensioner actually pays is minimal. He even wants to make car loans tax deductible.
But all these cuts and giveaways come at a price.
Just extending the existing tax cuts alone would cost $4.6trillion over a decade according to the Congressional Budget Office.
The non-partisan Committee for a Responsible Federal Budget estimates that the Bill as it stands even with the spending cuts it proposes, will still increase debt – the amount owed – by $3.3 trillion through 2034 and increase the annual deficit – the gap between what we spend and what we earn – by between $2.9 and $3.3 trillion a year.
It was originally Elon Musk’s job to find these trillions in savings with his band of nerdy DOGE’rs but he has lost interest, irritated the President by becoming more famous than him, and sloped off to try and fix his car company.
“OK, but what about deficit budgets, balance of payments, the bond markets?” I’m asked.
In very plain language and terms everyone understands – the US spends more than it makes, but because it is the US and the world affords it ‘reserve currency’ status it is able to issue ever more debt because there is a ready market of nations, wealthy individuals, and funds happy to continue to buy US bonds and treasuries.
And that is how it has been for a century.
Back before the First World War, Britain and the pound sterling enjoyed that privilege, but as its economy shrank and its influence with it, that role was transferred to the dollar.
To be a reserve currency you need both the economic might and the financial systems to deliver the myriad of investor products required. Britain still has the latter, just, but only the US has both.
Brits whom I talk to at policy conferences or workshops can all recall when Liz Truss thought otherwise and believed she could cut taxes by billions in her unfunded mini budget. The traders of all the required debt – the romantically named Bond Vigilantes – said “No” – and she was gone a week later.
Economists and central bankers know this unique position is what allows the game to be played in America’s favour. It is that reserve currency status alone which has allowed America to continue to borrow ever more rather than take the politically difficult decision to raise taxes or drastically cut spending.
“So, what is different now?”
The President has other ideas. Trump has decided he likes tariffs. And, because the President is surrounded by appointees not elected officials, everyone is scrambling to reverse engineer a scenario where tariffs and trade wars make sense, rather than telling him he is wrong – for that would end their careers.
He believes tariffs will raise the missing trillions required but that doesn’t chime with the realities of a global economy and the way debt works.
Understandably, businesses, think-tanks and other political lobbying organisations are agitated by this gap in economic literacy.
“So,” people ask, “What are the risks?”
While the debt has always been a huge number, today it is starting to be so top heavy it appears unsustainable. The interest payment to service the debt alone is the second highest expenditure in the federal budget, more than America spends on defense and the military.
Debt fears are already at such an elevated degree the US economy has been downgraded by credit rating agency Moody’s. They are worried that coupled with the continuing trade wars raising prices and inflation – which in turn see a rise in interest rates which make the payments go up – this budget proposal is a risk to the quality of America’s debt. In short, it will cost more to borrow in the future.
But Trump’s view is different. He believes trade deficits are bad. He believes it is wrong to take foreign investment in US debt instruments and then spend that money on buying the goods and services we require and desire, often from overseas.
That’s just what he believes.
Which is why this Budget Bill matters.
On the one hand the administration is freely picking fights with foreign powers, it is making the US less welcoming to foreign investment, it is making it a less trusted partner and ally – and then on the other hand, it is setting a budget which requires those same nations and funders it is squaring up to, to buy even more of our debt. A strange approach.
When you speak to supporters of the Bill their hope is the US will grow its way out of debt. Hope is not a strategic position.
Personally, I doubt Trump and the Republican elected officials who look set to railroad this Budget Bill through, will see much of the political upsides they also hope for.
First, my battle weary experience tells me simply extending tax codes which have been in place since 2017 won’t feel like ‘a win’ to many people. No-one will get more money in their pay packet and trying to persuade them something that didn’t happen might have, is a tough call for political point scoring.
Add to that the Budget Bill is hugely regressive, a massive transfer of wealth from the poor to the rich.
The current spending cuts which are being proposed impact food stamps and veteran services, Medicaid and Affordable Healthcare, social security benefits and the like, while forecasts indicate 25% of the upside on the tax cuts is only going to be felt by those earning more than $1,000,0000 a year.
There are some political inconsistencies here. There will be discussion and debate. Party lines may blur. Trump’s populist working class movement aspirations will be hit if voters feel worse off.
That’s why corporate affairs professionals, public policy practitioners and lobbyists are starting to tour the Capitol’s tea rooms and corridors again.
For me, if people don’t feel better off, and the economy stutters, then the mid-term elections in 2026 could be a decisive moment in this administration’s second term. Remember, campaigning and the primary positioning for these has already begun and, unsurprisingly, elections tend to focus the mind for politicians.
I also imagine some members of the Senate GOP Caucus are going to push back, but only to implement further and deeper austerity cuts to reduce the deficit. It is still true the GOP has a redline that wont and can’t be crossed – ‘Taxes cannot go up for the wealthy or corporations.’
Again, this is a stance unlikely to gain much populist support from those blue-collar working-class voters initially attracted to Trump’s promise of lower prices and a greater America again.
And many Senators and Representatives who may consider voting for this Bill will be – or are about to be – acutely aware they have majorities of a lot fewer than the number of people currently receiving Medicaid or Affordable Care.
Data is being processed, arguments are being made, conferences and meetings are already scheduled.
What does this all mean?
Just like it always has and always will, the focus has finally moved down Pennsylvania Avenue from the White House to the Capitol. Game on.
