By David Morgan

Republican Concerns About Trump’s Tax Agenda

WASHINGTON (Reuters) – Just days before Donald Trump returns to power, some Republican allies in the U.S. Congress are warning that the president-elect’s aggressive tax-cut agenda could falter due to growing concerns in the bond market.

At a closed-door meeting on Capitol Hill, House Republicans voiced worries that extending the 2017 Trump tax cuts, estimated to cost $4 trillion over the next 10 years, could jeopardize the U.S. government’s ability to manage its $36 trillion debt, which increases by $2 trillion annually.

> “The buyers of our bonds are getting nervous that we’re at the point that we cannot pay it back. That affects every one of us,” said Republican Representative Ralph Norman. “If we can’t sell bonds, guess what? We’re in a ditch.”

The U.S. bond market is closely monitoring the incoming Trump administration’s plans, which aim to address various issues, including the deportation of undocumented immigrants and imposing new tariffs on imports.

Congress must also confront a mid-year deadline regarding the nation’s debt ceiling to avoid default, following Trump’s recent attempt to expedite the process before he assumes office on Monday.

Longer-dated U.S. Treasury yields soared to their highest since November 2023, with the 10-year bond reaching a high of 4.79% before trading lower to 4.66% on Wednesday afternoon.

> “Congress has to reduce the deficit,” stated Republican Representative Andy Barr. “The bond market is telling Congress that if we don’t get our fiscal house in order, mortgage rates and credit card rates will continue to rise.”

Democrats argue that extending Trump’s tax cuts would benefit primarily corporations and the wealthy, further jeopardizing the nation’s fiscal stability.

Democratic Senator Chris Murphy characterized Trump’s focus on diversions like acquiring Greenland as a tactic to distract from the serious consequences of tax cuts.

> “They’re going to try to distract the press and the public from the thievery that will come with this massive tax cut,” Murphy said.

To curb federal spending, Trump has appointed Tesla CEO Elon Musk, the world’s richest individual, to explore significant cuts. Musk initially proposed a $2 trillion annual cut, which he later deemed a “long shot,” suggesting that $1 trillion might be more practical.

However, this lower goal still represents almost one-sixth of federal spending, a challenging target considering Trump’s commitments not to cut popular programs like Social Security and Medicare, and Republicans’ resistance to defense spending cuts.

Recently, House Republicans circulated a potential spending cut list amounting to $5.7 trillion over a decade—nearly 10% of current spending levels—which includes reductions in Medicaid and the Affordable Care Act.

House and Senate Republicans plan to utilize a legislative tool called reconciliation to advance proposals aligning with the Trump agenda while bypassing Democratic resistance and the Senate’s 60-vote filibuster for most legislation.

Barr emphasized the need for such a reconciliation package to deliver both economic stimulus and credible spending cuts to reassure investors that Congress is addressing the U.S. fiscal crisis.

> “Will this reconciliation bill actually reduce the deficit? If they believe it will, it could lead to lower Treasury yields,” Barr stated.

> “What we need to communicate to Americans is that this is not austerity; it’s about lowering your mortgage payment.”