So much for the "Big Beautiful Bill": A new Continuing Resolution is presented
Taxes, Medicaid, Debt, or a game of kick-the-can
A “government shutdown” impends.
March 14 is last the day for which there will be congressionally appropriated funding to operate the federal government. If no further appropriations are agreed upon, the federal government will initiate a shutdown on March 15. This means that all government offices and agencies will immediately stop all actions and services that are deemed “non-essential.”
A default on the national debt is also impending, if Congress does not increase the ever-present, self-inflicted Damoclean sword we call the “debt ceiling.”
I had a whole post prepared about the “Big Beautiful Bill,” a House Budget Resolution that would have cut taxes, cut Medicaid, and raised the debt ceiling, but then House Appropriations Committee Chair Tom Cole intervened and released a continuing resolution that has the backing of House Speaker Mike Johnson and that Trump now favors. I sort of suspected this might happen, but I didn’t expect Trump to promote it. He must be getting real pushback from Republican senators behind-the-scenes.
I’ve left some of the background information below, because the issues with the “Big Beautiful Bill”—tax cuts, Medicaid cuts, the debt ceiling—are going to come up again. (The debt ceiling will come up very soon.) The continuing resolution has a better shot of passing this week than the appropriations package that would have been required by the House’s “Big Beautiful Bill,” but it will still run into trouble. Even if House Republicans can pass the continuing resolution on their own (a big “if”), the Senate will still require votes from Democrats unless they finally trash the filibuster for good. Because of the reluctance of House deficit hawks to pass budget bills that do not lower government spending, continuing resolutions have always needed votes from Democrats in the House.
Why wouldn’t Democrats vote for this continuing resolution? For one, it’s touted as “clean,” but it does make cuts to programs that Democrats care about. It also removes restrictions around some funding, thus allowing Trump and his Administration more leeway to enact their own policies.
But perhaps the biggest reason why Democrats will be reluctant to vote for the resolution is that they are so frightened by and disgusted with Trump’s actions in other realms—especially foreign policy and internal corruption (e.g., DOGE and crypto initiatives)—that they may risk the shutdown or even the default to avoid abetting an increasingly autocratic government. Dems will probably point out (or should) that they might help pass budget bills when Trump starts honoring them, instead of impounding funds mandated by Congress (e.g., the federal funding freeze).
Nonetheless, Democrats will be under extreme pressure this week to vote for this resolution.
How did we get here?
The government shutdown deadline is March 14 because that is the end-date of the current continuing resolution—just passed in December—under which the government is operating. A continuing resolution is a congressional agreement to extend, for a set period of time, whatever appropriations amounts were last agreed upon. Only by issuing new appropriations bills can Congress raise or lower funding levels or redistribute funding across government functions.
Because Trump and congressional Republicans have such an ambitious policy, spending, and tax cut agenda, they urgently want to get new appropriations bills passed; however, they cannot count on votes from Democrats for their highly controversial plans, so any new appropriations bills must rely on the reconciliation process to avoid filibusters in the Senate. Thus, both the House and the Senate recently released “concurrent resolutions” to kick off the reconciliation process, which would preclude the use of the filibuster in the Senate. The resolutions are HR. Con. Res. 14 and S. Con. Res. 7.
These “concurrent resolutions” are not laws. They are simply agreements on the amount of spending over the next 10 years. For reconciliation to work, the appropriations bills (a set of 12 bills, often combined into one or a few packages) must follow the agreed-upon guidelines in the concurrent budget resolutions.
The House concurrent resolution, which was Trump’s favored version, would have:
Extended the Trump Tax Cuts (from the Tax Cuts and Jobs Act).
The tax cuts will not expire until the end of 2025.
Increased the debt (and the debt ceiling).
Increased spending to secure the border.
Required cuts to Medicaid (or Medicare), among other social services cuts.
The New York Times published a very good explainer of the House Budget Resolution that I highly recommend.
Both versions of concurrent resolutions passed their respective houses, but the House resolution did not pass without some serious strong-arming of Republican holdouts. The margins in Congress, especially in the House, are very tight, and the Republicans are not entirely a monolithic bloc of votes. Despite Trump’s favor for the House Resolution, Republican senators were clear that it would need considerable changes to be approved in the Senate.
But time is running out, and one week for House and Senate Republicans to come to agreement on the budget resolution as well as the appropriations bills appears to be impossible. Thus, just yesterday, March 8, the House Appropriations Committee announced the “Full-Year Continuing Appropriations and Extensions Act, 2025,” a continuing resolution that would keep the government open until the end of the 2025 fiscal year.
The proposed continuing resolution
These types of bills are essentially a long list of revisions to previous gigantic bills. In this case, the continuing resolution provides slight adjustments to the two appropriations packages passed and signed in 2024 (you can track appropriations here): Public Law 118-47 and Public Law 118-42.
The House Appropriations Ranking Member Rosa DeLauro is circulating a Democratic response and refutation of the continuing resolution. The Democrats’ primary issue seems to be with the funding flexibility that this particular resolution would grant Trump. For instance, it adds $8B in “transfer authority” defense funds that would allow the Secretary of Defense to spend as he sees fit, provided he submits an execution plan to Congress (see Sec. 1421).
I haven’t been able to go through the full resolution yet, but I’m sure we’ll hear more details about it soon, especially if it looks like it might pass. Funding for the National Institutes of Health provided by the 2016 Cures Act would be severely cut (from $407M to $127M; see Sec. 1905). It increases pay for military personnel (Sec. 1401). Overall, the bill cuts $13B in nondefense spending.
I’m unsure what this continuing resolution means for Ukraine funding. The previous appropriations package (118-47) designated funding for Ukraine through 2025. Presumably this continuing resolution—supported by Trump—continues to mandate that this funding remain available.
The continuing resolution would not raise the debt ceiling. And, Trump will almost certainly fight hard for the extension of his tax cuts before they expire at the end of the year. Thus, there will be other opportunities to argue about government debt in the very near future. I get into this more below.
Perhaps most critically, the presentation of the continuing resolution will force Democrats to choose between keeping government functioning as best as it can in this wild time (and Democrats are, generally, pro-government), or fighting the increasingly autocratic takeover of the Executive Branch by denying them funding to further dismantle the government and harass our allies.
Although the “Big Beautiful Bill” appears to have been set aside for the continuing resolution for now, there is no doubt that Trump will want his tax cuts extended and that Republicans will continue to push for spending cuts. Consequently, I’d like to spend a little time discussing the major issues raised of HR Con. Res. 14: namely the tax cuts, Medicaid, and the debt.
Who would continued tax cuts benefit?
The Trump Tax Cuts (the “Tax Cuts and Jobs Act”) cut taxes for just about all household, but the largest percentage benefits were seen by those with the highest incomes. Here’s the breakdown from the Tax Policy Center:
TPC estimates that TCJA will reduce taxes on average by $1,610 in 2018—a 2.2 percent increase in after-tax income (table 4).21 After-tax income will increase by a greater percentage for high-income than for low-income households. The boost in after-tax income is 0.4 percent for households in the lowest quintile, compared with 2.9 percent for those in the top quintile, more than 4 percent for those in the 95th–99th percentile, and 3.4 percent for taxpayers in the top 1 percent.
The Committee for a Responsible Federal Budget notes that all of Trump’s 2025 tax proposals would “explode the debt” by somewhere between $5T and $11T over ten years.
If the Tax Cuts and Jobs Act itself were made permanent, the Tax Foundation notes the following:
Highest percentage savings would go to the top 1% income bracket; in general, the middle class (40%-90% income brackets) would see the least benefit.
Economic growth generated by the tax cuts would only offset a small amount of the loss in revenue: “Overall, economic growth will offset $710 billion, or 16 percent, of the combined $4.5 trillion in revenue losses.”
Who benefits most from Medicaid?
I’ve made a couple of my own plots illustrating where people live who benefit from Medicaid and the Children’s Health Insurance Program. Both programs are imperiled by the House Resolution.
You can zoom and pan, and if you hover over a district you should be able to see the % of population covered by Medicaid or CHIP (first plot) or the # of children covered (second plot), as well as the name and office phone number of the representative of the district. Feel free to give ‘em a call to let them know that you know exactly how many people and kids could be hurt by cutting Medicaid.
What about the debt?
The national debt is the accumulation of deficits. Deficits are simply the differences between the revenue of the US government (sometimes referred to as the “receipts”) and the amount the US government spends (the “outlays”).
Let’s start with a historical view of debt and deficits in a couple of charts. This data comes from the Treasury and the Fed (GDP). First is the annual deficit (by calendar year) over time. Second is the annual deficit as a share of outlays in that year—this does account for changes in value over time. It tells us how well we actually covered our spending in a given year. The third chart is the cumulative debt over time, and the fourth is the ratio of debt to Gross Domestic Product.
Bush and (especially) Trump tax cuts increased the annual deficits and thus the debt, but more importantly, they left the US in a poor position to deal with future crises. In Bush’s case, it was the Great Recession at the end of his term. For Trump, it was COVID that hit at the end of his term. In both of those cases the US needed to finance a recovery to protect the health and safety of the American public. This meant that the debt needed to increase much more than it otherwise would have had the surplus at the end of the Clinton administration continued to be collected. That’s not to say everything about the tax cuts was bad—and there are good arguments for keeping some of them—but on the whole, and looking back, they were unfortunate decisions.
Debt-financing a government is not necessarily a bad thing. It’s true—the finances of a nation that can print money and issue debt are not the same as household finances. “Balancing the checkbook” analogies don’t apply as well as deficit and debt hawks want you to think they do. So long as the US is viewed by potential investors as a forward-thinking nation primed for growth, debt-financing our government will allow us to live in prosperity. But, this doesn’t mean that the amount of debt can continue to rise indefinitely.
A big reason that the magnitude of the debt matters: Interest payments! We have to pay interest on that debt on a regular basis to keep investors happy. Should we ever fail to make those payments, that would be a “default on the debt.”
The chart below from the US Treasury’s regular fiscal updates shows revenue (receipts) and payments (outlays) for January 2025. First, note that the vast majority of what the government spends money on is Medicare, Social Security, “Health” (largely Medicaid and CHIP) and Defense. The other major outlay is “Net Interest.” These are the interest payments on the debt. The larger the debt, the larger these payments, and then either the deficit will be larger or we have to cut other programs.
As you can see in the chart above, Outlays - Receipts = Deficit. Reducing the debt requires reducing deficits.
While there are certainly many efficiencies that can be achieved in federal programs—including entitlement programs—significantly reducing the debt without severely harming elderly, sick, and poor Americans must require increasing taxes, perhaps starting with lifting the “Wage Base Limit” cap on the Social Security tax. Ending the Trump Tax Cuts (aka the “Trump Revenue Loss”)—or at least mindfully reducing them—would be a fine start to balancing the budget, as well.
Who invests in US debt? Mostly Americans, but also other countries. Japan, China, and UK are the largest international investors in US debt.
What about the debt ceiling?
The debt ceiling is a stupid little ploy that exists to someday trick elected officials into defaulting on the US debt and sending the global economy into a tailspin.
*Ahem.* Let me try that again.
The debt ceiling is a statutory limit on how much debt the US Treasury can issue to cover the spending mandated by Congress.
But wait—one might ask—doesn’t Congress already explicitly authorize spending by passing appropriations bills? Yes, yes they do. So why do they need to authorize it again, potentially leading to a risky and irresponsible political and fiscal showdown? GREAT QUESTION. It’s basically because some elected budget hawks thinks this is “more responsible,” for some incorrect definition of responsible.
If the debt ceiling is exceeded—which is exactly the state we are in now—the Treasury uses what they call “extraordinary measures,” which basically means they fiddle with how and when they issue payments for government outlays to prioritize the full and timely payment of interest on the debt. What they end up doing is using the government retirement funds to fund the debt interest.
Defaulting on these interest payments would be like missing the most critical loan payment of your life—the credit rating of the US Treasury bonds would fall (as happened even over just *threats* to default in 2011), investors would be more wary of investing and would probably demand higher interest rates to continue investing, and the dollar as a global reserve currency would be severely weakened. The downstream effects on banking, finance, trade, markets, etc. would be difficult to predict. Even if everybody kept their cool and didn’t panic, the US would still have inflicted long term damage to itself. Our high standard of living benefits greatly from the use of the dollar as the primary global reserve currency and from our government’s easy access to credit on favorable lending terms.
(Side note: doing things like starting trade wars and threatening to take over territory of presumed allies can also weaken the dollar’s position as a reserve currency and make prospective investors very, very wary. The Economist recently noted that the US benefits by ~$10B annually because the dollar is the primary reserve currency.)
When will we exceed the limits of the “extraordinary measures”? It can be difficult to predict. The Treasury reports on what’s been used already; here’s the latest: https://home.treasury.gov/system/files/136/DSL-Public-v03-07-2025.pdf. Former Acting Treasury Secretary David Lebryk authorized the use of even more funds as “extraordinary measures,” which will extend the timeline beyond March 14.
The House Budget Resolution would raise the statutory debt ceiling by $4T, but given that the resolution would also rapidly increase the debt, it would also force us to a debt ceiling showdown much sooner than predicted:
You might ask—Why wouldn’t the House Republicans have raised the debt limit by the total amount they are planning to spend + the amount of revenue they are planning to reduce? GREAT QUESTION. This mismatch will give the deficit hawks in the Republican caucus a chance to kvetch about the debt again in a few years, and they’ll get another chance to use the debt ceiling to extort Democrats into cutting more social service programs.
The Senate Budget Resolution does not include raising the debt ceiling, which means Congress would have to do so separately, and very soon.
The House Appropriations Committee Continuing Resolution (the one just released yesterday) also does not include an increase to the debt ceiling.
Takeaway
Right now, the continuing resolution looks like it has made (very) temporarily moot the discussion of cutting Medicaid.
But Trump will want his tax cuts and the debt ceiling will need to be raised. Thus, I would fully expect Medicaid (and even Medicare and Social Security) to come under fire again soon. After all, they are the major outlays.
Severe cuts these social welfare programs are not the only option for controlling the budget. The tax cuts will continue to balloon the debt, thus raising our required interest payments, thus increasing deficits, and continuing this perverse cycle. The votes to increase the debt ceiling create even more political opportunities for supposed-debt hawks to argue about cutting benefits in order to cut the debt. In addition, the exceedingly chaotic foreign policy pursued by this Administration is weakening the US economy, portending even less revenue and less advantageous federal borrowing conditions—thus ballooning the debt even more.
There are responsible tactics for bringing down debt while ensuring Americans live prosperous lives—both Bush I, Clinton, and Obama did so!—and there’s no reason why we can’t do that again.