Relief swept Washington, D.C., after Congress ended a budget standoff and passed a short-term spending bill on December 21, averting a government shutdown. But this year-end legislative battle may foretell fiscal chaos come 2025 and risks another downgrade of U.S. debt. Donald Trump is set to take office on January 20, with fellow Republicans controlling both houses of Congress. This Republican "trifecta"—full command of the legislative and executive branches—has raised hopes for Trump to extend significant tax cuts due to expire at the end of 2025 and perhaps rein in government spending.
Yet the Trump agenda currently appears shakier, as evidenced by the recent funding battle. Although Republicans control the House, they are deeply divided, featuring over 30 budget hawks firmly opposed to tax cuts or spending hikes adding to the national debt, which has soared past $36 trillion.
The spending bill of December 21 passed the House with overwhelming bipartisan support—366-34—thanks to unanimous Democratic backing. Their cooperation allowed President Biden to avoid managing an unpopularity-laden shutdown during the waning days of his presidency. Once the House acted, the Senate passed the funding bill without hassle, but with Trump set to take the reins, minority Democrats are unlikely to support Republican priorities.
The next Congress convenes on January 3, 2025, with Republicans holding only a five-seat majority, which could severely limit their ability to pass legislation. This highly tenuous majority means partisan bills are likely to require nearly every Republican vote—a task historically challenging amid such factionalism.
Republican lawmakers are already gearing up for sweeping tax cuts envisioned as the centerpiece of Trump’s second-year agenda. They focus on extending individual tax cuts implemented back in 2017, set to expire at the close of 2025, and possibly introducing new measures suggested by Trump, like eliminating the income tax on tips.
Nevertheless, the recent budget fight has cast doubt on whether these intentions can become reality. According to Henrietta Treyz, co-founder of Veda Partners, "Our discussions with Republican staff on Capitol Hill have increasingly suggested...a partisan bill addressing the expiring [tax cuts] will be increasingly tough, if not impossible, to pass next year." This state of anxiety among Republican staff reflects the deepening concerns over fiscal matters and governance.
Meanwhile, the looming specter of another government shutdown has sparked heightened impatience among lawmakers, particularly over the contentious debt ceiling—a cap on how much the government can borrow. Trump has pushed for provisions to raise or suspend the debt limit, but many of his fellow Republicans have expressed reluctance to support any increase accompanied by greater government spending.
Recently, 235 members from the House of Representatives, including 38 Republicans, voted against Trump’s proposed plan. This highlighted the disunity within the GOP, particularly when fiscal responsibility is weighed against party loyalty. The debt ceiling sets limits on government borrowing necessary for funding federal programs, including Social Security, Medicare, military expenses, and paying interest on national debt.
Since establishing the debt ceiling at $45 billion back in 1939, Congress has raised it 103 times. The last maximum set was $31.4 trillion, with Congress having suspended the debt ceiling until January 2025. Should the cap be reached, the repercussions could be detrimental to the economy, with the Treasury unable to borrow money and the government forced to make severe cuts, potentially impacting salaries and social security benefits.
Experts from the Economic Policy Innovation Center have warned the debt ceiling may hit its limit by mid-June 2024. Initially, the government could evade default through emergency measures like postponing investments but would run out of options, nudging the U.S. toward a destabilizing default.
“A default could be catastrophic for the U.S. economy,” experts say. They enumerate the worst-case scenarios, including ruined confidence and skyrocketing borrowing costs. Trump has continued to advocate for sweeping reforms surrounding the debt issue; on his Truth Social platform, he urged Congress to "get rid of, or extend out to perhaps 2029, the ridiculous debt ceiling." His proposal includes funding federal agencies until mid-March and suspending the debt limit for another two years. Still, this approach has drawn adverse reactions from fiscal conservatives, such as Texas representative Chip Roy, who declared he felt “absolutely sickened by a party” ignoring fiscal responsibility.
Despite the urgent rhetoric and increasing tension over the debt ceiling and budgetary measures, House Speaker Mike Johnson insisted Congress would fulfill its obligations without permitting government operations to grind to a halt before the holiday season. Yet Trump’s additional demands pose risks of falling through once more, potentially straining fragile bipartisan negotiations on upcoming legislation. If clashes over fiscal priorities remain unresolved, they could threaten to deepen divisions within the GOP and challenge Trump's efforts to implement his broader economic agenda once he resumes the presidency.
The path forward hinges on whether lawmakers can bridge ideological divides and negotiate solutions acceptable to both factions within Congress and the administration. The unexpected complexity of the budget process demonstrates how preceding governmental actions foreshadow challenging times, particularly as 2025 approaches. Will Congress find common ground, or is another showdown looming on the horizon?
