Romina Boccia and Ivane Nachkebia
The Republican section of the 2025 Joint Economic Committee (JEC) report presents a crucial analysis of America’s fiscal trajectory—at a time when Congress is contemplating making the budget situation even worse. The report evaluates President Joe Biden’s 2025 Economic Report and offers an alternative vision for fiscal policy, focused on reining in spending rather than tax increases. Notably, the JEC’s report draws extensively from research by Cato scholars and our allies, reinforcing its arguments on the dangers of runaway entitlement spending, the misuse of emergency spending designations, and the benefits of pro-growth tax reform.
The JEC acknowledges that the rising debt and persistent deficits are the result of runaway government spending, not insufficient revenues, as tax receipts have remained stable over time. It specifically identifies spending on entitlement programs as the primary driver of the deteriorating fiscal outlook, noting that costs have grown dramatically due to unsustainable benefit design coupled with an aging population.
Rep. David Schweikert (R‑AZ), the chairman of the committee, sets the tone of the report with a powerful statement:
[T]he prosperity of our nation is on borrowed time. Now, as every dollar that Congress votes on is borrowed, we must exercise the intellectual resolve to confront the looming fiscal crisis. Stopping excessive spending is necessary to ensure future generations of Americans are not burdened by our current excess.
We applaud Rep. Schweikert’s leadership in producing a report backed by hard data that doesn’t shy away from highlighting the sobering fiscal reality of the nation. We are especially proud to see that our research—alongside that of our Cato colleagues—helped inform the committee’s work on the report, particularly on the issue of unsustainable spending. Below, we walk through the report’s major fiscal takeaways and the specific Cato research that supports them.
Washington’s Spending Problem
The JEC report attributes most of the growth in federal spending to increases in mandatory spending, while discretionary spending has declined as a share of the total over time (see Figure 1–4). However, the JEC acknowledges that discretionary spending has increased in nominal terms, partly due to “emergency spending when there is no real ‘emergency.’” Here, the report cites a paper by Dominik Lett and me, in which we estimate that Congress has designated $12 trillion as emergency spending over the past 30 years and highlight examples of improper designations.
Going into specifics on mandatory spending, the report explains that Social Security has deviated from its original goal of preventing old-age poverty, to providing large benefits to wealthy retirees. To this point, the JEC cites my blog on the excessive Social Security benefits received by high earners and references a proposal highlighted in a piece by the Manhattan Institute’s Jessica Riedl to discontinue cost-of-living adjustments (COLAs) for such retirees.
Furthermore, the JEC stresses that Social Security trust fund surpluses weren’t saved for paying benefits but were instead spent on financing federal deficits. “It is important to remember that programs like Social Security are a pay-as-you-go system, closer to a Ponzi scheme than a retirement savings program,” states the report and references my blog on the topic. The JEC also emphasizes that when Social Security runs a cash-flow shortfall and taps into its trust funds, it increases federal debt held by the public (see Figure 1–16), a point I’ve made at length.
On the revenue side, the report warns against misguided proposals like introducing a value-added tax (VAT) and instead provides a better alternative: reducing tax expenditures and closing loopholes in the tax code. As Cato’s Adam Michel explains in his paper on pro-growth tax reform (which the JEC references): “Congress has added hundreds of credits, deductions, preferences, and other loopholes that provide trillions of dollars in subsidies to politically favored industries and move millions of Americans entirely off the tax rolls.”
The JEC also cites an article by Cato’s Chris Edwards, Citizens Against Government Waste’s President Tom Schatz, and me, where we proposed pairing President Trump’s first-term corporate tax cuts with cuts in corporate welfare, including eliminating distortionary farm and renewable energy subsidies.
In the chapter on industrial policy, the report highlights a study by Cato’s Travis Fisher and Joshua Loucks, which estimates the 10-year cost of the Inflation Reduction Act (IRA) subsidies could exceed $1 trillion. As Fisher and Loucks write, “Rather than expanding the trillions in subsidies given to politically well-connected energy companies, Congress should make it a priority to repeal these measures as part of a broader attempt to simplify the tax code and rein in spending as America’s debt crisis deepens.”
At Fiscal Crossroads: Key Policy Actions for Congress
The JEC report should serve as a wake-up call for lawmakers to take decisive action on four critical fiscal deadlines in 2025. The looming debt limit deadline, the expiration of individual provisions of the Tax Cuts and Jobs Act (TCJA), discretionary spending caps, and Obamacare subsidies all require a responsible fiscal strategy to avoid further weakening the nation’s finances and significantly increasing the risk of a debt crisis. Congress should:
Pair any debt limit increase with spending reforms to put the budget on a sustainable path. Primary budget balance (excluding interest costs) or stabilizing debt-to-GDP at 100 percent are good targets. Congress should aim for $9 trillion in net 10-year savings to stabilize the debt. Given the political gridlock on entitlement reform, an independent fiscal commission could help advance economically necessary solutions that are politically difficult.
Extend expiring provisions of the TCJA in a deficit-neutral framework. Currently, neither the House nor Senate budget resolutions are remotely close to this target. The House at least instructed respective committees to identify $2 trillion in partial offsets, though it falls short of the $4.5 trillion in revenue reductions from extending the 2017 tax cuts. The Senate, on the other hand, is pushing for the least fiscally responsible option, a “current policy baseline” that wishes the deficit impact of extending expiring tax cuts away.
Congress should reject the current policy baseline gimmick and seize significant and overdue savings, including by going after “low-hanging tax code spending [that should be] cut.” Lawmakers should follow the JEC’s recommendation and eliminate tax expenditures, such as the open-ended and unsustainable Biden-era IRA subsidies, to ensure that pro-growth tax cuts fully achieve their potential without adding to the federal debt.
Reduce and limit discretionary spending. Congress should return discretionary spending to pre-pandemic levels (adjusted for inflation) and enact new spending limits that grow no faster than 2 percent annually. Congress should further ensure these caps are not undermined by budgetary gimmicks, such as the abuse of emergency spending, a common practice highlighted in the JEC report.
Allow expanded Obamacare subsidies to expire in 2025. These subsidies, extended under the IRA, resulted in $20 billion per year in enrollment fraud, according to the Paragon Institute. Making them permanent would add $335 billion to deficits over the next 10 years. Letting these subsidies expire would ease the strain of health care spending on the budget while also reducing government intervention in health care markets, which is driving up costs without improving health care quality.
The JEC report is a valuable and timely analysis that accurately pinpoints the root causes of America’s fiscal problems and puts forward prudent solutions. At a time when runaway spending and rising debt threaten fiscal and economic stability, the JEC report stands out as a serious, data-driven effort to chart a responsible fiscal path.
Read the full report here