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President Donald Trump's big, beautiful tax bill is making its way to the Senate.
And Republicans certainly have some feelings about it.
We need to focus on spending, spending, spending.
But other GOP senators want to cut some and spend even more.
And right now the big spenders are winning.
It all boils down to one big philosophical question, can the US keep borrowing?
This is Swamp Notes, the weekly podcast from the Financial Times, where we talk about all the things happening in US politics, finance, and the economy.
I'm Mark Filippino, and this week we're asking, do Republicans still care about fiscal responsibility?
Here with me to discuss is Edward Luce.
He's the FT's US national editor and columnist. He also co -writes our Swamp Notes newsletter.
Hey, Ed. Great to be with you, Matt.
And we've also got James Politti.
He's the FT's Washington bureau chief.
Hey, James. Hi, Marc.
So, James, among other things, this bill makes permanent—President Trump's tax cuts that he introduced in his first term, and the estimate is that it will raise the debt ceiling by four trillion dollars.
It also cuts spending on a number of government programs. How central was the debt question as Speaker Mike Johnson navigated the tensions here?
Well, I think it's very central.
The Republicans had vowed to slash spending in this bill while extending the tax cuts, and they cast themselves as the champions of sort of fiscal conservatism and fiscal discipline.
But actually, as you pointed out, the net effect of the legislation is that it will increase U .S. debt levels by trillions of dollars, several trillions of dollars over the next 10 years.
The impact of the tax cuts is far greater than the impact of the spending cuts.
And so the Republicans are finding themselves in a situation where they argued and campaigned on reducing the debt, but actually they're adding to the debt.
James, before we go any further, let's do some vocab.
We hear about the concerns about the US debt problem.
We hear about the debt ceiling and issues over a budget deficit.
What's the difference between all these words?
Well, the budget deficit is the annual difference between what you spend and what you take in.
The overall debt level is the accumulation of the budget deficits over time.
And the debt ceiling is a statutory limit on the amount of money that the country can borrow.
And so essentially, every now and then, Congress has to increase the borrowing limit to allow for new debt.
That limit is coming up for a new vote over the summer.
Otherwise, the U .S. Treasury will run out of cash.
Got it. Now, Ed, what's the stake with the debt growing?
You recently wrote that the debt itself hasn't really bothered markets.
But combined with the volatility of Trump's policy -making, it could make for bigger problems, right?
The nominal debt, which is what, $13 something trillion, James will know the exact number, is not what matters.
Even if it's growing, that's not what matters.
What matters is, is it outstripping growth?
If as a share of GDP, it is growing which it now is, and has been for really quite a while since the 2008 financial crisis and and dramatically stepped up with all the COVID spending, and now further accelerating as a share of GDP with Trump's big, beautiful bill, as he calls it.
Well, then that begins to bother markets.
Once it gets sort of north of 100 % of GDP, that begins to bother markets, and we're at about 123 % of GDP now, and this will raise it much further over the next decade, as James said.
and it doesn't mean that America can no longer borrow.
It just means it's gonna be paying slightly more normal borrowing costs because foreigners need to be compensated more for the risk of owning US Treasury bonds, for the risk that some black swan will interrupt America's full faith and credit.
And so it just means it's gonna be what in Britain, under Liz Truss, the very short lived Prime Minister three years ago, they dubbed the moron premium.
Just you've got to pay more to borrow.
I don't want to ignore moron premium, but I do want to put a finer point on it.
We're talking about an issue where the debt has been growing at a quicker rate than gross domestic product.
But is this also a Donald Trump specific moment?
Or is it something bigger than that?
So what we're seeing today is two things.
One is the shock of Trump's sort of declaration of economic war on the world since liberation day and how that's really frightened the markets.
And second is the sort of combination of really two, three decades of the buildup of American debt.
And that old cliched Ernest Hemingway was asked how he went bankrupt, he said slowly then quickly.
A lot of people are thinking along those lines about the US debt situation.
But it's not going bankrupt, and it's not going to default unless it chooses to default.
Congress could, as it often does, play chicken over raising the debt ceiling.
If you don't raise it, you're not allowed to borrow it, and therefore you default.
You stop repaying existing Treasury bondholders, foreigners and Americans alike.
But I doubt that will happen.
Congress has never actually really done it.
So I don't expect America's going to default.
But I do expect that the recent premium on American borrowing is going to show up every time Treasury has auctions, whether they're for two -year bonds, 10 -year bonds, 20 -year bonds, 30 -year bonds.
This is going to show up at a time of higher interest rates.
It means that as a share of the budget of the federal budget, the amount that interest payments eat up, which is already larger than the Pentagon's budget, is going to get larger and larger and that leaves fewer dollars to spend on the future.
So the costs will manifest themselves in that way.
James, does it make sense to talk a little bit about different factions within the Republican Party when it comes to debt?
Is it split along a particular line?
Do certain factions feel a certain way?
Well, they're kind of hard -line conservatives who are driving a very hard bargain.
Most of them are in the House Freedom Caucus in the lower chamber, but there are some in the Senate as well.
And they are truly calling for like the deepest possible spending cuts to all sorts of government programs. And they're often based in very conservative districts.
And then you have more moderate members of the Republican Party who are often in swing districts districts, so they have tougher reelection fights.
They want less aggressive spending cuts and they want more tax relief for instance.
They want an expansion of the deduction for state and local taxes in many cases.
And then you have sort of the middle ground, which are the traditional leadership Republicans who are mostly aligned with the White House, but the real battle will be played out between the sort of hard -line conservatives from very Republican districts, pitted against the more moderate members of the House.
Getting back to our central question.
We have a party in power that's now talking a lot about fiscal responsibility, never really quite reaches those savings.
is it still central to their priorities?
Is the narrative that Republicans are still the fiscally conservative party, is that still true?
Well, they still get a lot of credit for that from the voters.
And I think that's based really on the belief and the reality that Republicans are more aggressive on spending cuts.
And most, I think voters see fiscal responsibility Through the frame of spending cuts and the social safety net and, you know, spending on government programs, they don't really see it through the lens of the tax side of things.
And they don't really believe that tax cuts are actually, you know, have a negative impact on the country's fiscal situation.
And so I think that's why Republicans are viewed as the, still as the party of fiscal conservatism, even though that hasn't proven true through, you know, Trump's first presidency and George W.
Bush's presidency, either.
Ed? Yeah, I mean, really, since Reagan, Republicans have been about tax cuts and have very successfully dressed it up as being fiscal conservatism.
But cutting taxes, is if you don't have corresponding matching cuts in expenditure, is not fiscally conservative.
It's fiscally liberal, you know, for want of a better term.
And so the Republican record is considerably worse than the democratic record in terms of rising budget deficits and adding to the public debt, the national debt much worse.
There's one Republican in the last 50 years who's raised taxes, that was George Bush Senior, and his party turned on him, and he lost to Bill Clinton in 1992.
Ronald Reagan cut taxes.
George W. Bush, or Bush Jr., cut taxes.
Trump cut taxes and is doing so again without, in each case, any corresponding spending cuts.
The only president who has ever balanced the budget since the Second World War is Bill Clinton in the late 1990s.
And so I think, you know, the public sort of branding of Republicans being fiscally conservative and Democrats being fiscally reckless is very close to the opposite of what the track record shows.
Guys, not to bring it back to partisan politics but where are Democrats now in the question of national debt?
I mean, I think Democrats are, you know, have been through kind of a cycle of conflicting messages, really, on the debt.
During the, you know, in the aftermath of the financial crisis, Barack Obama decided to create this bipartisan fiscal commission to try to bring down the debt and put the U .S. on a path of sort of more fiscal, responsibility and sustainability.
That effort sort of failed because both sides weren't able to come to any kind of agreement, and the pressure on both parties to be more responsible on the debt and deficits eased.
And throughout the first Trump term and into the pandemic rescue plans, and then the stimulus that followed the pandemic rescue plans, so through Trump won, Biden, there wasn't really much pressure to tackle the debt.
And this is the sort of first time in really a while, in maybe 10 -plus years, that I've seen an increased focus on fiscal matters.
And of course, you know, at the moment, you're hearing Democrats bring it up more.
They're attacking the Republicans for being reckless.
the Republicans are in a difficult position because even those who are genuine fiscal conservatives have to defend and support President Trump.
Some of them are even coming out and saying his trade policies are fiscally responsible because they generate a revenue through the tariffs, which can then be applied towards to offset the tax cuts and the rest. But this is the first time where markets are also in, in quite a long time where markets are starting to bristle at fiscal issues in the US.
So it's really coming to the fore.
James, one final question.
Do you see this broader economic discussion coming up in the debates over this tax bill or the budget?
What are the big questions likely to be?
I mean, I think the big fault line over the next few months with regards to the tax bill are going to be in plain view.
Democrats are gonna attack the tax bill for being a giveaway to the rich and a punishment really to lower income, middle income families that rely on the social safety net, which is gonna be cut significantly through this bill.
And on the Republican side, there's a debate unfolding between the members members who are kind of pure, aggressive spending cut champions and who really want to see very, very even deeper spending cuts than the ones that are in place, and those who are kind of more moderate on the spending side and who are kind of more aligned with the White House and the Republican leadership and are trying to just simply get this bill through.
And I think those are where the tensions are gonna come out in the coming weeks.
All right, guys, we are going to take a quick break and then, as always, when we come back, we're going to do Out of the Swamp.
All right. We are back with Out of the Swamp, where we ask our guests to talk about a story that they're watching outside of Washington politics.
Ed, I'm going to start with you.
What you got? So I was in Canada on Monday and Tuesday giving a talk at Toronto about my new book, the biographies, Big New Brzezinski, and that happened to coincide with the visit of King Charles and Camilla to Ottawa, and I was really struck.
Of course, he was invited there as a symbol live Canadian sovereignty, to give the speech to, they call the speech from the throne, which is normally given by Canada's Governor General, it sets out the government's agenda.
But the real the real sort of reason for the visit, very short visit, was just to show that Canada, you know, is is different to the United States, and because they're all feeling understandably a little bit paranoid at the moment.
Yeah, given Trump's rhetorical predations on their I didn't have Charles being kind of a symbol of sovereignty on my bingo card, but now I find it unforgettable.
I'm sure Mark Carney will take any help that he can get.
James, what about you?
What stories are on your mind?
It's not really a story.
It's more about the joys of having a puppy, which is dominating our summer.
And I had a dog as a kid.
and now to have one as an adult is, it's an organizational challenge because we have to figure out who will stay with her during the summer break but also just like a wonderful rediscovery of what it's like to own a pet and take them for a walk as much as we can in the middle of all the madness that is unfolding in the city.
That is lovely. We are a cat household in my house And it certainly is a pet, is all I've got for you there.
I want to thank our guest, Edward Luce, who's the FT's US national editor and columnist. You should check out the book that he mentioned on Former US National Security Advisor Zbigniew Brzezinski, which is out now.
It's called zBig, The Life of Zbigniew Brzezinski.
Thanks, Ed. Thanks so much, Mark.
And James Pleady is our Washington bureau chief.
Thanks, as always, James.
Thanks, Mark. This with Swamp Notes, the US politics show from the Financial Times.
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