Cozen Currents: GOP and Democrats Are Both in Your Debt (Literally)

“Politicians of all stripes bemoan the state of the nation’s balance sheet. But that doesn’t stop those on both the right and the left from digging the country deeper into a hole.” — Howard Schweitzer, CEO, Cozen O’Connor Public Strategies

The Cozen Lens

• The federal debt has grown dramatically in recent years, with both parties pursuing significant deficit spending, the impacts of which will likely not be fully clear for several years.
• President Donald Trump scored a win with the passage of a $9 billion rescissions package last week but Trump 2.0’s spending cuts are just getting started.

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Deficit Politics Are Bipartisan

Everyone Loves to Spend. In recent years, massive legislation has significantly grown the US debt, with lawmakers in both parties driving up spending without equivalent offsets.

• Since the Covid-19 pandemic, government spending has increased significantly, resulting in a substantial growth in the federal debt, as lawmakers have passed large aid bills in addition to partisan measures. Most recently, Republicans, typically the party with more deficit hawks, passed the One Big Beautiful Bill Act (OBBBA), which the Congressional Budget Office has projected will add $3.4 trillion to the federal debt over 10 years.
• While these bills passed by Congress often include provisions that offset expenses and reduce the deficit impact, the timing of when those costs and revenue raisers take effect is not always the same, opening the door to higher deficit impacts than initially anticipated. This occurred with the forgiving of loans given to businesses under the CARES Act and could happen again if lawmakers look to delay or undo some of the more controversial spending cuts included in the OBBBA.

Populism’s Fingerprints. The recent increase in spending can also be partly linked to the growth of populist ideologies in both parties, given their interest in protecting the common person against perceived elites.

• In the US, populism shares a relatively common perception of an elite, which has tended to be associated with globalization and large corporations. This has led to supporting policies intended to assist those perceived as being harmed by these groups and to aid in leveling the playing field. Each party has employed different tactics to achieve this objective, but the outcome under both recent Republican and Democratic presidencies has been an increase in the federal debt.
• President Trump was one of the first to revive populism in the mainstream with his 2016 election campaign. While Trump often talks about wanting to reduce the debt and pass a balanced budget, his track record shows that he has no issue supporting policies likely to increase the national debt. During his first term, he approved $8.4 trillion in new ten-year borrowing, $3.6 trillion of which consisted of the CARES Act and other Covid-19 relief measures. Another budget reconciliation bill may be difficult for Republicans to pass, but already, Trump’s OBBBA has a larger deficit impact than any other partisan measure passed during his first four years in office, which is unlikely to be close to fully offset by spending cuts his administration pursues.
• In the Democratic Party, increasing government spending and support for deficit spending is far from new. However, a shift that is starting to emerge is that the backing of populist policies has opened the door to some further left candidates to see political success, such as Zohran Mamdani in the race for New York City’s next mayor. Whether this trend emerges more nationally is yet to be seen, but success for Mamdani and his policies in New York could spur others to consider similar approaches.

Winning the Short Term. Amid this growth of the federal debt, deficit hawks have not disappeared, especially in the Republican Party, but their impact on legislation has been minimal.

• A significant reason why deficit hawks have lost their influence is the pressure that lawmakers feel to ensure they are well-positioned to win their next election. This has led to a greater willingness to support increases in the deficit if it results in policies that benefit voters’ wallets, rather than policies that may be more fiscally responsible.
• The short-term focus of lawmakers is not new, but outside observers have warned that the growing debt risks are reaching an unsustainable level, forcing the government to react. One such moment could be the potential insolvency of Social Security, which is currently projected for 2034, but could occur sooner based on the deficit impacts of legislation in the coming years.

Spending Cuts Are Going to Increase

One Rescissions Package Down. Congress has given President Trump an early win on spending cuts.

• Congressional Republicans narrowly passed a $9 billion rescissions package late last week, allowing Trump to claw back funding for foreign aid and public media. This is the first time that lawmakers have formally codified DOGE cuts.
• This rescissions package is a drop in the bucket of federal spending, which totaled $6.8 trillion in FY24. It will have a negligible impact on the deficit, which is primarily driven by mandatory spending. Mainly entitlement programs, mandatory spending accounted for 61 percent of the federal budget in FY24. Discretionary spending, the funding appropriated by Congress each year, was only 26 percent. Discretionary cuts are not big enough to meaningfully reduce the deficit,
• Office of Management and Budget Director Russell Vought has suggested that more rescissions requests lie ahead. “I think if this continues to pass, we’re likely to send up another rescissions package that would come soon, and we’ll be working on that to try to get that across the finish line,” he told The White House may seek to pursue additional spending cuts unilaterally through a process called pocket rescissions, which Vought has asserted is a legitimate authority of the executive branch. This would entail submitting a rescissions package with less than 45 days remaining before the end of the fiscal year, allowing the funding to expire while still frozen as the request is pending.

Where Next?: Trump’s FY26 budget indicates where Trump and Vought may look for future cuts.

• The president’s FY26 budget request to Congress included a 22.6 percent cut in nondefense spending relative to FY25. The proposed cuts in the president’s budget offer a roadmap of areas that the Trump administration could target with pocket rescissions.
• For example, Trump’s budget would cut spending on the National Institutes of Health (NIH) by 40 percent and the Centers for Disease Control and Prevention by nearly 50 percent. His budget would also cut the Department of Housing and Urban Development by $33 billion (or 44 percent), including rental assistance and affordable housing programs and targets green energy programs at the Department of Energy for cuts, such as electric vehicle charging. Other areas that would be deeply affected under Trump’s budget include the Department of State and international programs (84 percent cut), National Science Foundation (56 percent cut), Environmental Protection Agency (54 percent cut), and the Department of Labor (35 percent cut).
• If the Trump administration pursues pocket rescissions, spending levels for certain agencies could fall below the levels appropriated by Congress, and in some cases significantly below based on the president’s proposed budget.

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