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>>> Newman: Why Trump is killing the penny and ransacking the government


Yahoo Finance

Rick Newman

February 10, 2025


https://finance.yahoo.com/news/newman-why-trump-is-killing-the-penny-and-ransacking-the-government-201615375.html


Donald Trump’s early actions as president range from dramatic to trifling. On one hand, he wants to slash billions of dollars in spending on foreign aid, consumer protection, and even healthcare. On the other, he hopes to end production of the penny, which most Americans probably wouldn’t miss.

It might seem like a grab bag of unconnected ideas, but there’s a common thread: financing tax cuts. One of Trump’s top priorities is extending tax cuts due to expire at the end of 2025 while tossing in some new ones. And that will require a lot of budget savings elsewhere.

The last set of Trump tax cuts, in 2017, was an easier lift. Back then, the total national debt was about $20 trillion and the portion held by the public was 74% of GDP. There were congressional limits on how much new legislation could add to the debt, but market concerns about a debt crisis weren’t an issue.

They are now. The national debt has ballooned to $36 trillion and the portion held by the public is close to 100% of GDP. Markets are sending signals that the national debt is too large, most notably through long-term interest rates that are going up even as short-term rates have been coming down. Some Republican budget hawks in Congress warn that Trump’s new tax cuts won’t be possible unless offset by major spending cuts.

Trump stormed into office with an army of hatchet men led by efficiency czar Elon Musk. The template seems to be Musk’s cost-cutting spree at Twitter, which he bought in 2022. Within two years, Musk had slashed the payroll by more than 75% and upended the whole business model.

The rapid downsizing of government would be the sort of techno-libertarian revolution Trump supporters such as tech billionaires Peter Thiel and Marc Andreessen have called for. It would also, conveniently, pave the way for more of the tax cuts that Trump champions.

The tax cuts for individuals that Trump signed in 2017 expire at the end of this year. Extending those for another 10 years would cost the government at least $4 trillion in foregone revenue, adding that much to the national debt if not accompanied by spending cuts. The cost would be higher if the tax cuts become permanent.

Trump has proposed at least a dozen other tax cuts, including his campaign promises to eliminate taxes on tip income, overtime pay, and Social Security benefits. Those tax cuts would add another $1 trillion to the debt, and possibly a lot more, depending on how Congress might structure them.

So Trump needs to come up with a lot of offsetting spending cuts. Killing the penny would bring in chump change, given that the mint spends only about $454 million per year making one-cent coins. That’s just .00006% of all federal spending. Yet Trump is right that minting pennies is a money-loser. Each one-cent piece costs 3.69 cents to produce, so getting rid of them in a cost-cutting sweep would literally show that Trump is looking out for every penny of taxpayer dollars.

There’s more money to be found in Trump’s bigger targets. Trump wants to shutter the US Agency for International Development, which has an annual budget of $40 billion. A cap on health research grants aims to save several billion dollars. Musk and his team are reportedly scouring the budgets of every federal agency, and they’re just getting started. Musk has said his end goal is to identify at least $500 billion in annual spending cuts.

New tax revenue is also part of Trump’s calculus. That’s a big reason he’s pushing for a wide range of tariffs. In 2024, the United States pulled in $83 billion in revenue from customs duties, which was less than 2% of all revenue. Trump is aiming for a lot more tariff revenue, which he describes, wrongly, as taxes paid by foreigners. Trump also said he’s willing to eliminate a tax break for certain professional investors that could bring an extra $15 billion in revenue per year.

The giant asterisk hovering over many of these plans is that they might require congressional authorization, which makes them a dicey proposition. Trump can probably get rid of the penny on his own, and he does have the power to levy tariffs. But cutting any agency’s budget is up to Congress, not Trump, and it may be illegal for Trump to withhold spending that Congress has authorized through legislation. Many lawsuits have already been filed challenging Trump’s executive orders, and more seem certain.

Musk’s efficiency work is clearly creating a template for congressional Republicans to follow, if they choose. Some Republicans won’t need the nudge, since low taxes and smaller government have been a GOP mantra for decades. There may be some holdouts, however, who favor a skeleton government in theory but aren’t quite willing to cut services or benefits for their constituents. Libertarianism is getting a tryout, with the verdict yet to come.

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