The present 119th Congress tackling issues in our nation’s capital is drastically modifying the course of history. Despite having convened only 135 times so far, their seven-month tenure, well into the 2025 budgetary year, is heralded as the most financially negligent Congress in history. Previously, the 12th Congress, from 1811 to 1813, was identified as the least fiscally wise as it declared war on England in June 1812 with zero allotted war funds, immediately following their refusal to renew the First Bank of the United States’ charter, the ideal prospect for securing loans. Presently, although we thankfully are not engaged in a declared war, everyday combat operations are a reality as a result of conflicts erupting across the globe. Further escalating the seriousness of the situation, the global economy hangs in the balance due to a self-induced trade war. What are the actions being taken by Congress in this dire time? Seven and a half months into the current fiscal year, when the FY 2026 budget should be nearing completion, the 2025 budget still lacks the necessary endorsements for approval by the president.
The core features of the budget, however, are increasingly evident. Compared to the 2024 fiscal year, total outlays are projected to rise. Elon Musk’s lofty aspirations to slash expenditures by $2 trillion have only managed to scrape away less than $100 billion. Moreover, some of the cuts have detrimentally impacted crucial programs such as income tax administration and air traffic control, necessitating their reinstatement. Furthermore, any reduction achieved through DOGE will be eclipsed by the surge in outlays due to an expected increase of 1.5 million beneficiaries for Social Security and Medicare, a development that everyone was aware of. Yet, the Congress appears to be heading towards tax reductions amounting to roughly $90 billion annually based on the current policy. Such decisions have spiraling consequences.
The primary cause of the persistent trade deficit tormenting the administration is the overspending habit of Americans, leading to a consumption that outpaces our production. The large deficit, brought about by government expenditures exceeding revenue, is a contributory factor to the constant trade deficits that some interpret as exploitation. Yet, the intricacy of the issue extends beyond such simplistic interpretations. Let’s delve into the specifics of congressional plans: initially, the tax reductions from 2017 that chiefly served the wealthy are set to become permanent, reflecting gross injustice.
In an observation from a decade and a half ago, economist Raghuram G. Rajan of the University of Chicago highlighted a disturbing trend: while only 8.9% of the income was attributed to the top 1% of households in 1976, this figure had jumped to 23.5% by 2007. To put it into perspective, for each dollar of real income growth generated between 1976 and 2007, 58 cents were pocketed by the 1% household category. This disturbing trend has remained steady, leading to a reality where the United States, once in the top five countries with the most equitable income distribution, now finds itself in the top fifth of nations with the most pronounced income disparity.
Indeed, it’s critical to acknowledge that high-income families shoulder a significant share of total personal income taxes. The reason behind this, however, is that their share of the total income is enormous and continuously expanding. Yet the tax cuts they enjoyed since eight years ago are set to continue. In addition, the ‘carried interest’ provision—leading to hedge fund managers facing lower tax rates than many school teachers or truck drivers—will remain. This gross injustice, glaring and in need of rectification for over 30 years, still stands.
No taxation will be levied on any Social Security benefits, shattering the delicate bi-partisan consensus painstakingly built back in 1984. The aim of this agreement was to eradicate unjust differences between the taxation of public and private pension plans on one side, and the completely untaxed employer contribution portion of Social Security on the other. Another crucial outcome was the extended solvency of the Social Security fund, achieved without burdening taxpayers with increased FICA rates. However, responsible bi-partisan crafting, once a cornerstone of a functional Congress, seems to be faltering in the face of demagoguery.
As a result, relatively prosperous individuals will enjoy reduced tax bills, with the cost being transferred to younger generations. The decision to exempt tip income from taxation may help some of these future generations, even though tip workers constitute less than 2% of US workers and a considerable amount of tips are still paid in cash. Workers remunerated on an hourly basis will not face taxes on overtime.
In 1938, the Fair Labor Standards Act, a key legislation of Franklin Roosevelt’s New Deal, stipulated wages at least 150% of the regular rate for any hours worked in excess of 40 a week. All this income was subject to individual income tax; however, Congress is now stipulating that only pay for the first 40 hours of the week will be taxed. There’s a semblance of fairness in these two measures: if billions are being gifted to the wealthy, at least a few billions can support wait staff, truck drivers, and assembly-line and warehouse workers.
Nevertheless, the problem is that such policies inadvertently create other incentives that affect the efficient allocation of resources as people aim to maximize the benefits they can extract from these new tax preferences. Lower tax rates on capital gains than on salaries gave rise to the ruse of hedge fund managers being remunerated with ‘carried interest.’ Earlier instances include the lower tax rate on the sale of ‘livestock held for breeding purposes’ leading to female pigs being bred to produce one litter of offspring before being slaughtered, while their male siblings were sent for slaughter as soon as they reached the desired weight.
Such gimmicks meant to decrease the tax burden result in the wastage of resources. The only reason they make sense to the people indulging in such activities is due to the oddities of the tax code. The tax changes being considered this year risk incentivizing further similar behavior. Owners in the service industry are already exploring the possibility of shifting their compensation model towards ‘tips.’ Similar changes are being considered across different sectors.
Brazil provides a cautionary tale where a similar policy for tax-free overtime was previously trialed. Workers who were previously clocking 40 hours per week started adjusting their schedules – working 32 hours one week and 48 hours the next – resulting in no change in total hours worked. However, this scheme allowed 10-15% of their pay to escape taxation. While such manipulation might not be feasible for larger employers in the United States, it could potentially occur in smaller operations in construction, retail, office cleaning, and similar sectors.
However, those who earn by the mile such as long-haul truck drivers, or others on piecework compensation schemes, won’t benefit at all from these changes. Economists specialized in public finance assess the overall ‘burden’ of taxes, encapsulating the total cost of taxes paid to the government, the compliance costs, and the reduction in national productivity due to the inefficient usage of resources purely to avoid taxes.
The practice of breeding young sows to have one litter to reduce tax obligations wasted resources in terms of feed, labor, and facilities to ultimately produce the same amount of pork for consumers. The policy measures taken by Congress in 2025 result in an economy that is less efficient, less fair, and less sustainable than it was in the beginning of the year. Even when the economy was riddled with problems at the onset of the year, further regression is unacceptable.
It is indeed baffling to witness the economy moving in reverse due to certain decisions. This situation raises pertinent questions about why we as a society are tolerating this indiscreet and damaging shift in economic policy.
In conclusion, the actions and the responsibilities of the Congress ought to reflect the needs and aspirations of the populace. The representation must be rooted in responsibility, sustainable decision making, and ensuring economic fairness. The current economic declination is a call to revise our strategies and align our fiscal policies with the goal of achieving an equitable and sustainable economic future for all.
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