Republican sweep gives Trump power to slash taxes, may strain deficits

By David Morgan

WASHINGTON (Reuters) - Republicans' lock on power in Washington next year will allow President-elect Donald Trump to pursue an aggressive agenda of tax cuts for businesses, workers and retirees that will test his party's often-aired goal of reining in the government's $35 trillion in debt.

Early priorities are expected to include extending Trump's 2017 tax cuts, funding the wall along the U.S.-Mexico border, cutting unspent funds allocated by Democrats, eliminating the Department of Education and curbing the powers of agencies including the Consumer Financial Protection Bureau, according to Republican lawmakers and aides.

Republican leaders view those priorities as a first step toward ensuring buoyant economic and job growth for the country, as well as tighter control over immigration.

"It's time to get to work. Together we will Make America Great Again," House Majority Leader Steve Scalise, the chamber's No. 2 Republican, said on X after Trump's election.

But Trump's agenda threatens to sink the U.S. government trillions of dollars further into debt as its borrowing costs climb, posing a challenge for Republicans who have long proclaimed the need to reduce a deficit that topped $1.83 trillion in fiscal 2024 with interest on the debt exceeding $1 trillion for the first time.

A majority of Americans -- 62% -- believe Trump's policies will drive the national debt higher, according to a Reuters/Ipsos poll that closed Nov. 7.

With Democrats likely to offer only opposition to the Trump agenda, Republicans will need to deliver by using a parliamentary tool known as budget reconciliation, which would allow them to pass legislation related to spending or revenues while bypassing the Senate's "filibuster" rule that requires 60 of the 100 members to agree on most legislation.

Republicans used reconciliation in the first two years of Trump's first term, as did Democrats during the first two years of President Joe Biden's term when they had control of Congress.

Some hardline conservatives signaled that they might not support tax cuts without offsetting spending cuts, such as to the Social Security, Medicare and Medicaid entitlement programs.

"There's no guarantee I'm just going to go along with the same old business as usual. I doubt I would," said Senator Ron Johnson, a Wisconsin hardliner who sees a major overhaul of the tax code and cuts to mandatory spending programs other than entitlements as necessary to defray the cost of the Trump tax cuts.

"We either do big change now or big change will be forced on us in a horrific debt crisis," Johnson said.

FIRST TEST

The first test for the new Republican-controlled Congress is expected in January, when lawmakers seek agreement on a fiscal 2025 budget resolution that must be passed by both chambers to unlock the reconciliation tool.

"Some folks who really will never be satisfied with any type of a budget proposal that could ever pass Congress, they're going to have to understand that we're doing this only to be able to get at reconciliation," said Republican Senator Mike Rounds.

The tax cut proposals Trump made on the campaign trail - from extending the 2017 tax cuts to abolishing tax on tips, overtime and Social Security benefits - could add $7.5 trillion to the nation's debt over the next decade, according to the nonpartisan Committee for a Responsible Federal Budget.

Republicans contend that they can compensate for lost tax revenue by fostering economic growth and streamlining the federal government through spending cuts and a new government efficiency department that Trump said will be headed by billionaire Elon Musk.

"Our goal would be to get probably a trillion dollars clawed back from the so-called Inflation Reduction Act," said Representative Andy Harris, chair of the ultraconservative House Freedom Caucus, citing a bill laden with green energy tax credits that Democrats enacted in 2022.

Trump repeatedly proved himself able to steer the party's agenda during his four years out of power - notably by telling lawmakers to kill a bipartisan immigration bill early this year. Once returned to the Oval Office, his influence within the caucus will only be stronger.

For the past two years, members of the House Republicans' unruly and narrow majority have repeatedly gotten in their own way, voting against bills backed by their leaders and leaving them to rely on Democratic support to approve must-pass bills.

Should the 60-vote filibuster rule block a Trump priority next year, he could call on Senate leaders to do away with it, as he repeatedly pressured them to do early in his first term, and as some Democrats urged early in Biden's term.

Intra-party disagreements could also be compounded by the limited nature of reconciliation, which will leave out non-budgetary priorities involving hot-button border and culture war issues.

But Senate Republican leader Mitch McConnell, who is due to step down in January, disregarded questions about party unity and pointed to the successes of previous narrow majorities.

"It's harder," McConnell said. "But I think we were successful before with a narrow majority and I think we will be again."

(Reporting by David Morgan; Editing by Scott Malone and Daniel Wallis)