Election Day has arrived, and American voters are set to determine whether former President Trump or Vice President Harris will win the presidency, with the victor set to face a host of fiscal policy challenges to address when they take office next year.
The winner of the presidential election along with either Democratic or Republican majorities in the House and Senate will be confronted with a debate over the national debt, budget caps on federal spending as well as expiring tax cuts that will keep fiscal policy in focus throughout 2025.
The first fiscal policy issue that will flare up will be the debt limit, which Congress suspended from the spring of 2023 until Jan. 1, 2025. That maneuver means the federal government can incur debt without facing a cap until the suspension ends in early January.
Once the debt limit is reactivated, the Treasury Department will have to begin using its "extraordinary measures" to fund the government's obligations and avoid a default on the debt. It's uncertain how long those extraordinary measures will last, though they typically provide a buffer of several months before they elapse – which is ultimately the deadline for Congress to raise or re-suspend the debt limit.
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During the last debt limit standoff, extraordinary measures began on Jan. 19 and the nonpartisan Congressional Budget Office signaled a few months later that they would be exhausted in early June, at which time the Treasury Department would have been unable to satisfy the federal government's obligations.
The next president and congressional leadership in both the House and Senate will also be tasked with negotiating whether the budget caps on discretionary spending – which is essentially all federal spending except Social Security, Medicare and interest payments on the debt – should be extended or reformed.
The Fiscal Responsibility Act of 2023, which was enacted in May of that year and also suspended the debt limit, capped the growth in federal spending for defense and non-defense discretionary items. However, those spending caps are due to expire at the conclusion of fiscal year 2025 at the end of September, meaning a debate over the debt limit in the spring may overlap with discussion of spending levels.
Another element of fiscal policy that will be a key focus of debate in 2025 is the expiration of tax cuts and provisions in the Tax Cuts and Jobs Act (TCJA) – the 2017 tax law that Trump and congressional Republicans enacted using the budget reconciliation process. Due to budget rules that govern reconciliation bills' impact on long-term deficits, certain policies are enacted on a time-limited basis for compliance purposes.
Among the major provisions of the tax law that are due to expire at the end of 2025 are the modified tax brackets that were reduced at certain income levels and the standard deduction which was nearly doubled from $6,500 to $12,000 for individual taxpayers and from $13,000 to $24,000 for married couples filing joint returns.
The child tax credit was also doubled by the TCJA while the state and local tax (SALT) deduction was capped at $10,000 – both of which will also expire at the end of 2025.
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The cost of those measures in terms of lost tax revenue and the impact of their potential extension or revision on American households, businesses and the economy at large are also poised to factor into the broader debate about federal spending and debt levels that plays out next year.
Those dynamics have budget hawks urging policymakers to take the opportunity to put the long-term fiscal health of the U.S. at the center of the debate.
"We are on track to borrow an astonishing $2 trillion next year," Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget (CRFB), told FOX Business. "Yet there is a very real risk that lawmakers will borrow even more."
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"As they navigate the debt ceiling, expiring tax cuts, FRA caps, and the temptation to increase spending, they would be wise to remember that every new dollar we borrow harms the economy, weakens our national security, and leaves our kids even worse off. The fiscal choices of 2025 will have consequences for years to come," MacGuineas added.
