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5 Dates, Two Candidates, One Presidency

Posted: Jun 27, 2024

Highlights:

Introduction 

This evening, Presidents Biden and Trump will debate their contrasting approaches to the leading policy issues likely to confront their second terms. Both will offer to some degree or another affirmative policy choices – the usual lists of campaign promises that comprise the electoral bill of fare. Unique to modern American political history, both will also contrast the economy’s performance during their presidencies. Prior to their assumption of office, both presidents campaigned on, and ultimately delivered on certain promises. For candidate and then-President Trump, the clear domestic policy promise since delivered was the Tax Cuts and Jobs Act. For President Biden, it is most conspicuously the reorientation of the federal budget and regulatory agencies towards industrial policy. 

Observers should mind what candidates promise, and indeed many of those commitments become law. But recent history proves that most presidential attention is ultimately devoted to external events – action-forcing occurrences that are imposed on presidencies rather than telegraphed on the campaign trail and effectuated from the Oval Office. Over the last 20 years, presidencies have been dominated by these eventualities more so than the deliberated intentions of incoming administrations. Some of these events are fully predictable, the result of either inattention or deliberate deferral. 

For the next president, some action-forcing events are also scheduled. Nevertheless, there has been insufficient attention paid to these key milestones over the course of the current campaign.  At tonight’s debate, observers should take note of how each candidate grapples with these impending events – because the outcomes will affect every American, and in no small way.

2025 – Debt Limit

On January 2nd, the current limit on the Department of the Treasury’s authority to borrow will expire. At that point, the Treasury Department will have to deploy its toolbox of “extraordinary measures” to allow the federal government to continue to sell U.S. Treasury securities at auction in order to finance U.S. deficits. These authorities, a series of federal accounting and legal maneuvers that allow the Treasury to temporarily issue debt despite debt limit constraints, eventually exhaust and the debt limit fully limits Treasury’s borrowing authority. Such an eventuality would very likely precipitate a global financial crisis and risk a deep recession. Now matter either candidate promises to voters – this issue must be resolved early in the next administration.

2026 – TCJA Expiration

The most significant legislative achievement of the Trump administration was the Tax Cuts and Jobs Act (TCJA). The Act mixed significant tax reform, which included a reduction in the corporate tax rate paired with base broadening, along with individual income tax cuts, among other policy changes. Because the TCJA was enacted through the budget reconciliation process, the legislation had to adhere to certain budgetary constraints. These limitations required the scheduled expiration, or “sunsetting,” of the individual income tax cuts and reforms as of January 2026. The expiration of this element of the TCJA would result in a tax increase of about $4 trillion over 10 years, leaving taxpayers with an average tax hike of $2,853. President Trump has proposed a number of varying approaches to this expiration, including replacing the income tax fully with new tariffs. President Biden has pledged not to allow tax increases on taxpayers earning less than $400,000 per year, but did not include a TCJA extension in his most recent budget. Both presidents will need to confront this looming tax challenge in the first year of their new term. 

2026 – Federal Reserve Chairman Nomination

Perhaps the most stubborn economic policy challenge of the Biden administration has been persistent inflation. Despite strong labor market performance, the uncomfortable reality for the current administration is that since President Biden took office, inflation-adjusted earnings for workers have declined. Supporters tend to examine this trend over different periods, such as prior to the pandemic, which necessarily distorts economic history. But fair or unfair, presidents get the credit and the blame for what happens under their tenure, and that workers earnings have been eroded from inflation since the president took office is an irreducible fact. Federal Reserve Chairman Jerome Powell’s term as chairman of the central bank ends in May of 2026, meaning that the incoming president will need to confront the direction of U.S. monetary policy within the first half of their term. 

2033 – Social Security OASI Exhaustion

In 2033, the Old Age and Survivor Insurance (OASI) trust fund will become exhausted. In the absence of reform, the exhaustion of the OASI fund will confront Social Security retirees with a 21 percent benefit cut. Depending on work history and family size, this could present retirees with a benefit cut of anywhere from $4,800 per year for a low-income single retiree to a $21,000 cut for a higher-income retired couple. For the incoming president, this eventuality will be covered in the 10-year window of the first budget of the new administration. Both presidents have avoided proposing meaningful reforms to avert the exhaustion of the Social Security trust fund. The public would be well served if the debate produced more clarity from both candidates on this issue. 

2036 – Medicare HI Exhaustion
In 2036, the Hospital Insurance (HI), also known as the Medicare Part A, trust fund will become exhausted. At that time, payments for seniors’ patient hospital care, skilled nursing facility, hospice, lab tests, surgery, home health care would face an 11 percent cut. Unlike Social Security, Medicare has almost always been in cash deficit since its inception. Indeed, since 1965, Medicare has added $6.87 trillion to the national debt. The program is unsustainable for its beneficiaries and the federal budget. Both Presidents Trump and Biden have pandered to the public on the significant changes needed to make Medicare sustainable. The exhaustion of the HI Trust fund, much like Social Security, will be within the budget window of the next president’s budget. While history suggests the next president will defer action on this program, the option for future presidents to hide from this program’s woes is dimming rapidly.