president Donald Trump’s second term began Monday and his first year back in the White House will be marked by a series of fiscal policy battles with deadlines looming this year.
Fiscal issues facing the Trump administration and narrow Republican majorities in Congress this year include the debt ceiling, funding the government to avoid a partial shutdown, as well as the possibility of extending the limits of expenditure that expire and tax cuts.
Trump did not discuss these issues in depth during his inaugural address, and it is unclear at this point how the White House and GOP lawmakers will proceed on issues such as the debt limit, government funding and spending limits, which would require bipartisan support to pass. both houses of Congress.
The first of those issues came into focus on Tuesday as the United States reached the debt ceiling and the Treasury Department began using its “extraordinary measures” to keep paying government obligations to avoid a national debt default.
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The debt limit had been in place for nearly two years until Jan. 2, 2025, when it was technically reset, although a scheduled transaction in a federal Medicare trust fund temporarily reduced the debt to create a margin that lasted until to January 21. Then Secretary of the Treasury Janet Yellen announced on Friday that the emergency measures would go into effect on Tuesday to prevent any disruption in federal debt payments.
It’s not clear exactly how long Extraordinary measures of the Treasury will last in this case. The duration of emergency measures depends on the size and timing of federal spending, as well as the receipt of tax payments. In recent situations where emergency measures were implemented, they were expected to last between four and a half months and seven or eight months, putting pressure on lawmakers to raise the debt limit before those measures run out.
As the debate over the debt limit rages on, the federal government faces another fiscal deadline this spring with the government funding that expires at midnight on March 14 — setting up a race to avoid a partial government shutdown. At the end of December, then-President Biden and Congress agreed on a short-term continuing resolution extending spending through that date to previously agreed-upon levels to prevent a shutdown during the holidays.
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In the second half of 2025, Congress and President Trump will face the end of the 2025 financial year and the need to approve credit accounts for the next 2026 financial year, which begins on October 1.
The end of fiscal year 2025 will also mark the expiration of the spending limits that were imposed under the bipartisan Fiscal Responsibility Act of 2023, which also contained the most recent debt limit suspension. Although the law included an outline of spending limits for the next four years, they were not binding and intended as an optional guideline.
One of the biggest deadlines falls at the end of 2025 with the expiration of several key provisions of the Tax Cuts and Jobs Act (TCJA) of 2017: the historic Trump tax cut package and Republicans in Congress promulgated during his first term.
Lawmakers used the budget reconciliation process to enact the law, which allows it to avoid the Senate’s 60-vote legislative filibuster but carries long-term restrictions. budget deficit increases To comply with these rules, Congress often removes certain policies to prevent the final bill from increasing deficits beyond what the process allows.
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Among the main provisions of the tax law set to expire include modified tax brackets that were reduced at certain income levels. The law also doubled the standard deduction, which most taxpayers use to reduce their tax burden, from $6,500 to $12,000 for single taxpayers and from $13,000 to $24,000 for married couples filing joint returns.
The tax credit for children The TCJA also doubled from $1,000 to $2,000 per child, while expanding the availability of the Additional Child Tax Credit and increasing the phase-out of the Child Tax Credit so that more households would be eligible to claim it.
To help offset the tax cuts and the expansion of certain tax deductions, the TCJA lowered the state and local tax (SALT) deduction limit to $10,000, another provision that will expire at the end of the year . The SALT deduction allows itemized taxpayers to deduct income and property taxes assessed by state or local governments up to the limit, and is popular with taxpayers in relatively high-tax states.
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The daunting list of fiscal deadlines that await policymakers in the coming months comes as the country’s fiscal situation has become increasingly strained in recent years.
Increased spending on entitlement programs com Social Security and Medicare amid an aging American population is a long-standing trend that shows no signs of abating.
This has been aggravated in the subsequent time covid pandemic it began after a historic bout of inflation spurred the Federal Reserve to raise interest rates, causing the already soaring cost of servicing the more than $36 trillion in national debt to rise even faster.
Interest costs have risen to such an extent that the cost of paying interest on the debt surpassed federal spending on Medicare and defense last year, becoming the second largest category of federal spending.