President Donald Trump’s second term began on Monday and his first year back in the White House will be marked by a series of fiscal policy battles with deadlines that loom large this year.
Among the fiscal issues the Trump administration and narrow Republican majorities in Congress will have to face this year include the debt limit, funding the government to avoid a partial shutdown, along with considering whether to extend expiring spending caps and tax cuts.
Trump didn’t discuss these issues in depth during his inaugural address, and it’s unclear at this time how the White House and GOP lawmakers will proceed on issues like the debt limit, government funding and spending caps – which would require bipartisan support to pass through both chambers of Congress.
The first of those issues came into focus on Tuesday with the U.S. reaching the debt limit and the Treasury Department began to use its “extraordinary measures” to continue paying the government’s obligations to avoid a default on the national debt.
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The debt limit had been for nearly two years through January 2, 2025, when it was technically reinstated – though a scheduled transaction in a federal Medicare trust fund temporarily lowered the debt to create headroom that lasted until Jan. 21. Then-Treasury Secretary Janet Yellen announced Friday that extraordinary measures would take effect Tuesday to prevent any disruption in federal debt payments.
It’s unclear exactly how long the Treasury’s extraordinary measures will last in this case. The duration of extraordinary measures depends on the size and timing of federal expenditures as well as the receipt of tax payments. In recent situations when extraordinary measures were deployed, they were projected to last anywhere from four and a half months to seven or eight months – putting the pressure on lawmakers to raise the debt limit before those measures are exhausted.
While the debt limit debate is playing out, the federal government faces another fiscal deadline this spring with government funding set to elapse at midnight on March 14 – setting up a race to avoid a partial government shutdown from occurring. In late December, then-President Biden and Congress reached an agreement on a short-term continuing resolution that extended spending through that date at previously agreed-to levels to prevent a shutdown from occurring during the holiday.
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In the second half of 2025, Congress and President Trump will be faced with the end of fiscal year 2025 and the need to approve appropriations bills for the upcoming fiscal year 2026, which begins on October 1.
The end of FY2025 will also mark the expiration of the spending caps that were imposed under the bipartisan Fiscal Responsibility Act of 2023, which also contained the most recent debt limit suspension. Though the law included an outline of spending caps for the next four years, they were non-binding and intended as an optional guideline.
One of the most significant deadlines falls at the end of 2025 with the expiration of several key provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 – the landmark tax cut package Trump and congressional Republicans enacted during his first term.
Lawmakers used the budget reconciliation process to enact the law, which allows it to bypass the Senate’s 60-vote legislative filibuster but carries restrictions against long-term budget deficit increases. To comply with those rules, Congress often sunsets certain policies to prevent the final bill from raising deficits beyond what the process allows.
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Among the major provisions of the tax law that are due to expire include the modified tax brackets that were reduced at certain income levels. The law also doubled the standard deduction, which is used by most taxpayers to reduce their tax burden, from $6,500 to $12,000 for individual taxpayers and from $13,000 to $24,000 for married couples filing joint returns.
The child tax credit was also doubled by the TCJA from $1,000 to $2,000 per child, while it also broadened the availability of the additional child tax credit and raised the phaseout of the child tax credit so that more households would be eligible to claim it.
To help offset the tax cuts and expansion of certain tax credits, the TCJA lowered the cap on the state and local tax (SALT) deduction to $10,000 – another provision on track to expire at the end of the year. The SALT deduction allows taxpayers who itemize their returns to deduct income and property taxes assessed by state or local governments up to the limit, and is popular among taxpayers from states with relatively high taxes.
The daunting slate of fiscal deadlines awaiting policymakers in the months ahead comes as the country’s fiscal situation has become increasingly strained in recent years.
Rising spending on entitlement programs like Social Security and Medicare amid the aging of America’s population is a longer-running trend that’s showing no signs of easing.
That has been exacerbated in the time since the COVID pandemic began after a historic bout of inflation spurred the Federal Reserve to raise interest rates, which caused the already growing cost of servicing the more than $36 trillion national debt to surge even faster.
Interest costs have risen to such an extent that the cost of paying interest on the debt surpassed federal spending on Medicare and defense last year, making it the second-largest category of federal spending.
