MAGA Mike And John Thune Should Spend A Week At Stony Brook With Stephanie Kelton

Trump has a lot of costly campaign promises he wants to keep, starting with a huge tax cut for the wealthy. But Congress can’t find the money— and none of them know what MMT is. Yesterday, Alexander Bolton reported that GOP congressional leaders have run out of ways to pay for his agenda as their backbenchers continue to shoot down various unpopular proposals to cut spending or increase revenues. “Without finding some new ideas, the GOP risks adding trillions of dollars to future deficits by passing Trump’s agenda, something many conservatives are loath to do. Outside observers are expressing pessimism the Republicans will land on ideas that have enough support to get passed into law. ‘I just don’t see them getting the money. There’s no there there, to be quite honest about it. If they want to spend money, they’re going to end up putting it on the debt,’ said former Sen. Judd Gregg (R-NH), who previously served as the Republican chair of the Senate Budget Committee.”

Gregg laughed at Peter Navarro’s promise that they could get the money out of tariffs. “‘It’s all a joke, to be honest with you, when it comes to money-saving and reducing debt,’ he added. ‘This president doesn’t care too much about debt.’

The most ambitious plan floated so far, to reduce Medicaid spending by hundreds of billions of dollars, now appears all but dead after a dozen House Republicans informed their leadership this week that they would not support a bill that includes any reduction in Medicaid coverage to vulnerable populations.

Republicans who have balked at Medicaid cuts say they’re willing to support new work requirements for the program, which would save an estimated $109 billion over 10 years, and to root out “fraud.” But that would achieve limited savings.

Budget experts say the proposed discretionary spending cuts recommended by DOGE, which would still need to be approved through a vote by Congress, will end up saving relatively little money over the long term compared to the huge projected cost of Trump’s agenda.

So far, Musk hasn’t come close to finding the $1 trillion in cuts he initially said he would find. Even if his DOGE team cut all nondefense, discretionary federal funding— just about all the money appropriated by Congress outside the Pentagon on an annual basis— he would still fall $50 billion short of his goal.

Musk has since significantly pared back his budget-cutting goal for next year, saying he now anticipates savings of $150 billion from the reduction of waste and fraud.

“This DOGE group is throwing up a lot of smoke but is basically doing it with a small candle,” Gregg said. “They’re going after marginal discretionary events, which basically generate very small savings. So they’re not going to get it out of the discretionary accounts. They’ll get some, but it’s not going to be big.”

He called the whole exercise “a lot of flamboyance and very little substance.”

Trump has ruled out making substantial cuts to the two biggest drivers of the federal debt— Social Security and Medicare— and cuts to veterans’ health programs and military retirement pay are also considered off limits.

Some Trump allies are floating the idea of raising the rate for the top income tax bracket from 37 percent to 39.6 percent, or creating a new 40 percent bracket for people earning more than $1 million, but those ideas are running into stiff opposition from Senate Republicans.

“I am strongly opposed to raising taxes,” Sen. Ted Cruz (R-TX) said last week when asked about raising taxes on the wealthy.

Speaker Mike Johnson (R-LA) and Senate Majority Leader John Thune (R-SD) pledged at an April 10 press conference that they would seek at least $1.5 trillion in deficit reduction in the budget reconciliation bill they hope to pass to secure the border, plus up defense spending and extend the 2017 Trump tax cuts.

They made that promise to assuage fiscal hawks in the House led by Reps. Chip Roy (R-TX) and Andy Harris (R-MD), who threatened to vote against the Senate-modified budget resolution.

Extending Trump’s expiring 2017 tax cuts would add an estimated $4.6 trillion to the debt over the next decade.

In addition, the House and Senate Republicans are calling for the federal government to spend between $200 billion and $350 billion to secure the nation’s borders and between $100 billion and $150 billion to beef up defense spending.

Then there are the new tax relief proposals Trump has put on the table, such as exempting tipped income from taxes, which would cost between $150 billion and $250 billion over 10 years, and shielding Social Security benefits from taxes, which is projected to cost $1.5 trillion over a decade.

Budget experts say negotiators will have a very difficult time finding $1.5 trillion in savings.

“I don’t see where you can do $1.5 trillion unless you’re actually getting into Medicare and real benefits,” said William Hoagland, a senior vice president at the Bipartisan Policy Center who previously served as the Republican staff director of the Senate Budget Committee. “I don’t know how you do it.”

He noted that implementing new work requirements for Medicaid would save only an estimated $109 billion over 10 years.

And he warned “it’s extremely hard to define what waste, fraud and abuse is.”

“If you define wasteful spending to be something like the provider tax,” he said, referring to a budget gimmick states use to secure more federal Medicaid funding by taxing and reimbursing health care providers, it could produce big federal savings but would draw a lot of political opposition.

“That can be a big number, it could be well in $500 billion to $600 billion [in savings], but I think most people would say that would result in a reduction in benefits, so I think the provider tax is off the table,” he said.

The Committee for a Responsible Federal Budget estimates that banning such Medicaid provider tax “gimmicks” would save $720 billion over 10 years.

Limiting those taxes to 2.5 percent of provider revenue would save $285 billion while limiting them to 10 percent of state general funding would save $350 billion, according to the group’s projections.

Sen. John Cornyn (R-TX), a member of the Senate Finance Committee, has talked about eliminating tax “expenditures” or niche tax breaks that benefit special constituencies, such as the mortgage interest deduction.

But each of those special tax breaks have vocal constituencies, and the bigger the tax breaks, the more powerful the special interests that lobby for them.

Republican negotiators are most likely to eliminate the electric vehicle (EV) tax credit, a signature accomplishment of former President Biden’s clean-energy agenda. The $7,500 consumer tax credit for EVs was identified in November by Trump’s transition team as an offset for tax reform.

Other clean-energy tax credits that were enacted by Biden’s Inflation Reduction Act (IRA), such as the renewable electricity production tax credit, the energy investment tax credit, the clean electricity tax credit and the production tax credit, could be eliminated as well, to pay for Trump’s tax priorities.

But even those tax breaks, which were thought to be low-hanging fruit, have supporters in the GOP.

Four Republican senators, John Curtis (UT), Thom Tillis (NC), Lisa Murkowski (AK) and Jerry Moran (KS), sent a letter to Thune this month warning that repealing energy tax credits from the IRA would hurt businesses and jobs.

“While we support fiscal responsibility and prudent efforts to streamline the tax code, we caution against the full-scale repeal of current credits, which could lead to significant disruptions for the American people and weaken our position as a global energy leader,” they wrote.

Large cuts to defense spending also face staunch opposition on Capitol Hill.

Senate Armed Services Committee Chair Roger Wicker (R-MS) has insisted on providing at least $150 billion in new spending for the Pentagon to maintain U.S. defense capabilities.

One Senate Republican source said the $150 billion in new defense funding is a “minimum” for the budget reconciliation package.

Now, back to the MMT outlook that Congress members have no understanding of. MMT would offer a distinct lens for analyzing the fiscal challenges the GOP is facing, if they focussed on the role of government spending, deficits and debt in a sovereign currency-issuing nation (us). MMT posits that a government that issues its own fiat currency (like the dollar) is not financially constrained in the same way as households or businesses, as it can always create more money to meet its obligations. There’s no chance your garden variety Republican congressman will ever understand that, even though it shouldn’t be too hard to understand that the federal government, as the issuer of dollars, cannot run out of money or go bankrupt in its own currency. The national debt is not a burden in the traditional sense but rather a record of the money the government has spent into the economy that has not been taxed back. From an MMT perspective, the GOP’s concern about “adding trillions to future deficits” is misplaced if the spending aligns with the economy’s productive capacity. The real constraint is not the deficit or debt level but inflation, which arises if government spending exceeds the economy’s ability to produce goods and services. Watch this: minute and a half trailer from Finding the Money:

They understood MMT MAGA Mike and Thune would view Senor T’s agenda— extending the 2017 tax cuts, increasing defense spending, new tax relief proposals, etc— as feasible without requiring offsetting spending cuts or revenue increases, provided the economy has sufficient ‘real resources’ (labor, materials, infrastructure) to absorb the additional spending. If the proposed $4.6 trillion in tax cuts or $150–350 billion in border security spending pushes demand beyond the economy’s capacity, it could lead to inflation, not insolvency. MMT would suggest evaluating these policies based on their inflationary impact rather than their effect on the deficit.

MMT views taxes (including tariffs) not as a way to ‘fund’ government spending but as a tool to regulate aggregate demand, redistribute wealth, or achieve policy goals (e.g., protecting domestic industries). Proposals to raise the top income tax bracket to 39.6% or create a 40% bracket for millionaires are opposed by some Republicans like Sen. Ted Cruz. MMT would argue that raising taxes on high earners could reduce income inequality and curb excessive consumption by the wealthy, freeing up real resources for public spending. However, MMT does not see tax increases as necessary to ‘pay for’ Trump’s agenda, as the government can spend without taxing first. The decision to raise taxes would depend on whether the economy is at full capacity and needs demand reduction to prevent inflation.

MMT emphasizes that programs like Medicaid and Social Security are critical for maintaining economic stability, as they provide income and services to populations with high propensities to spend. Cutting these programs— reducing Medicaid by hundreds of billions or saving $109 billion via work requirements— could reduce aggregate demand, potentially slowing the economy unnecessarily. MMT would argue that maintaining or expanding these programs is viable as long as the economy has the capacity to produce the goods and services beneficiaries demand. The DOGE initiative’s focus on cutting waste and fraud— $150 billion in savings— admittedly would yield marginal results and MMT would question the need for such cuts, as they don’t ‘free up’ money in a financial sense for a currency-issuing government. Instead, cuts to discretionary spending could reduce public goods and services, potentially harming economic productivity. MMT would evaluate these cuts based on their impact on real resources— whether they reduce inefficiencies or harm critical infrastructure. I’d love to watch someone trying to explain this to Trump.

MMT shifts the focus from balancing budgets to managing inflation. The GOP’s agenda, with costs like $4.6 trillion for tax cuts, $1.5 trillion for tax exemptions, and $100–150 billion for defense, could increase aggregate demand significantly. MMT would ask if the economy at or near full employment? Are there unused resources (e.g., idle labor, underutilized factories) that can absorb the additional spending? If so, the government can spend without immediate inflationary pressure. Current data (as of April 2025) would need to be analyzed, but MMT assumes there is often more slack in the economy than traditional economics acknowledges.

If inflation risks emerge, MMT advocates tools like targeted taxes (e.g., on luxury goods), interest rate adjustments (though MMT generally downplays their effectiveness), or regulatory measures to manage demand, rather than slashing social programs or discretionary spending. 

Trump’s often voiced commitment to avoiding cuts to Social Security, Medicare, Medicaid and defense, combined with resistance to tax increases, aligns with MMT’s view that these programs are politically untouchable and economically vital. However, MMT would challenge the GOP’s framing of needing to ‘find the money’ or ‘offset’ spending. Instead, it would encourage MAGA Mike and Thune to focus on the economy’s productive capacity and inflation risks, not deficit fears. For example, extending the 2017 tax cuts ($4.6 trillion over 10 years) could be justified if it stimulates growth without overheating the economy. They should also recognize that the U.S. can finance Trump’s agenda by issuing dollars, provided real resources are available. This could reduce the urgency of finding $1.5 trillion in savings, as they pledged. They’d also have to recognize that if inflationary pressures arise, from defense or border spending they’d have to implement non-austerity measures like taxing speculative financial transactions or capping price increases in key industries. Conservative proposals to cut Medicaid, discretionary spending or eliminate tax credits (e.g., EV credits) could reduce economic output and harm vulnerable populations, contradicting the GOP’s growth-oriented agenda. MMT would argue that austerity is unnecessary and counterproductive unless inflation is a clear threat.

So… to implement Trump’s agenda without exacerbating deficits in a way that concerns fiscal hawks, MMT would suggest issuing dollars to cover tax cuts, defense spending, and border security, monitoring inflation indicators (e.g., CPI, wage growth) closely. If inflation risks emerge, they’d have to bite the bullet and consider taxes like a higher capital gains tax or a wealth tax to reduce demand from high-income households, rather than broad income tax hikes opposed by Republicans. They’d also have to use spending to address supply-side constraints (e.g., infrastructure, workforce training) to ensure the economy can handle increased demand from tax cuts or defense spending. They should also expand or at least maintain Medicaid and Social Security, as they stabilize demand and support the economy’s most vulnerable, aligning with MMT’s emphasis on public welfare.

In short, MAGA Mike and Thune and the rest of the congressional Republicans should shift their focus from deficit reduction to ensuring that spending enhances productivity and economic stability, while monitoring inflation as the primary constraint.