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The Fiscal Cliffs Coming Our Way in 2025
Senior Congressional Reporter for Punchbowl News, Andrew Desiderio shares insights into the looming fiscal cliffs and debt battles that will shape America’s economic future, highlighting the critical decisions facing Congress, and the potential consequences for national security and fiscal policy.
From now until Election Day, you’ll hear Joe Biden, Donald Trump, and their surrogates tell you why the stakes couldn’t be higher when it comes to the issues Americans care about the most, from abortion and immigration policy, inflation and national security.
What you aren’t likely to hear in their pitches are references to the so-called “fiscal cliffs” in 2025 that will have direct and lasting impacts on nearly every American — all of which will have radically different outcomes depending on which party controls the House, the Senate, and the White House.
The 119th Congress will need to act next year to raise the debt ceiling, fund the government while dealing with strict budget caps, and pass new tax policies to address the expiration of the Trump-era tax cuts.
Remember last year’s near-disaster over raising the federal borrowing limit? Biden and then-Speaker Kevin McCarthy clinched an eleventh-hour agreement that averted a catastrophic default on the nation’s debt. The uncertainty over whether Congress would act in time had negative economic impacts on its own.
Congress will need to act to raise the debt ceiling once again next year — most likely before the end of the summer — and this year’s election results will have a direct bearing on the outcome.
No matter what, Republicans will have a seat at the table as part of these talks, whether that’s because they control one or both chambers of Congress, or the mere fact that GOP votes will be needed to overcome a filibuster in the Senate. And as the 2022 debt-limit battle taught us, Republicans are keen to use the federal borrowing limit as a way to rein in overall government spending.
Last year’s debt-limit battle resulted in the Fiscal Responsibility Act, which imposed budget caps that are already complicating the ongoing spending negotiations for the next fiscal year.
Defense hawks are already trying to boost Pentagon spending above the FRA-mandated caps, and Democratic leaders are signaling that they won’t agree to waive the caps unless there’s a dollar-for-dollar increase between defense and domestic discretionary spending.
On top of that, the war in Ukraine will reach a turning point at the end of this year, with U.S. military aid set to dry up. This will prompt yet another debate over U.S. support for Ukraine, and could become fodder for another national security-focused supplemental funding package apart from annual defense spending.
Lastly, the Trump-era tax cuts will be expiring next year, giving the new Congress an immediate opportunity to legislate on tax policy.
If Republicans win a House-Senate-White House trifecta, you can expect that the existing cuts will be extended, and corporate taxes could be cut even further.
But if Democrats control at least one chamber or the White House, Republicans will be forced to negotiate with Democrats on how to address the looming expiration. This means the child tax credit could come into play, among other Democratic priorities.
None of these fiscal cliffs will dominate the headlines between now and Election Day. But you can bet that each will be a major storyline next year with far-reaching implications and, in some cases, potentially disastrous consequences if congressional dysfunction gets in the way.
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