Tax the rich? Slash spending? Republicans wrestle with economic priorities in the Trump era

WASHINGTON (AP) — What, exactly, the Republican Party stands for in terms of economic policy in the second Trump administration is a question reaching an inflection point.

Is it the party that promotes free-market prosperity or a 21st-century populism?

Does it stick with the “No new taxes” pledge that has been GOP political orthodoxy for decades or do Republicans tax the rich, as President Donald Trump suggests?

Roll back the Obama-era’s health care expansion and the President Joe Biden’s green energy investments or protect the federal flow of investment dollars generating jobs in the states?

Slash deficit spending or spike the nation’s now $36 trillion debt load?

Free trade or Trump’s tariffs?

As House Speaker Mike Johnson, R-La., and Republicans race to draft Trump’s “big, beautiful bill” of $4.5 trillion in tax breaks and $1.5 trillion in spending cuts, the final product will set the party on a defining path.

It’s still a work in progress.

“This idea of the American dream where we are the best country in the world — which I believe we are – will be gone and it’ll be our fault, so we have to do something right now to address it,” said Rep. Rich McCormick, R-Ga.

“And everybody wants to say, ‘Oh, yeah, we should do something,’ but nobody’s willing to say what that hard choice is.”

The GOP is shape-shifting its economic policy priorities in real time, transforming from a party that once put a premium on lower taxes and smaller government into something more reflective of the interests of the working-class coalition that depends on the federal safety net and put Trump in the White House.

On the one side, there’s the old-school Republican stalwarts who have guided policy thinking for years. Among them are former House Speaker Newt Gingrich, anti-tax crusader Grover Norquist, who says tax increases would be “stupid, destructive” and the influential Club for Growth, which pours millions into political campaigns.

But a rising neo-populist power center with proximity to Trump carries clout, with Steve Banon and others who reject the traditional trickle-down economic policies and propose a new direction that more benefits Americans.

Divisions run strong within the Republican Party, which holds the majority on Capitol Hill, and is bulldozing past Democratic objections to push its package forward on its own. GOP lawmakers are under mounting pressure to set aside their differences by Johnson’s Memorial Day deadline, especially as Trump’s tariffs stoke unease, and they are eager to signal that the economy is under control on their watch.

“This is a once in a generation bill,” said Rep. August Pfluger, R-Texas, chairman of the Republican Study Committee, a large group of House conservatives.

He said not only would the emerging package extend the tax breaks and cut spending, “it also gives us a mentality just to settle the markets, to give some predictability, to give everybody in our country the ability to go, hey, our economy is going to be strong.”

This weekend, Republican leaders are working to finish the 11 separate sections that will make up that big package before potential public hearings in the coming week.

But the final three — on tax policy, Medicaid and green energy programs, and food stamp assistance — have proved to be the most difficult, posing the biggest political risks.

Moderate conservative Republicans in the House have signed on to letters opposing steep cuts to Medicaid, which provides health care to more than 70 million Americans.

The Medicaid program has expanded in the 15 years since the Affordable Care Act, also known as Obamacare, became law, as more states signed up for federal cost-sharing allotments, and people benefited from enhanced federal credits to pay their insurance premiums. Republicans who pledged to “repeal and replace” the health law during Trump’s first term are now insisting they only want to target what they say is waste, fraud and abuse in Medicaid, as many fight to save its more popular parts.

Many of those same moderate GOP lawmakers also oppose rolling back the green energy tax breaks that Democrats approved under Biden as companies invest in wind, solar and other renewable energy development.

At the same time, the more conservative Republicans are roaring back, insisting on deep cuts.

Some 30 Republicans said the party must hold to the original GOP budget framework of up to $2 trillion in spending cuts, which they argue are needed to prevent the tax cuts from piling on annual deficits that are fueling the nation’s debt load. The cost of the tax cuts, first approved by Republicans in 2017, during Trump’s first term, is expected to grow if Republicans add other priorities, including no taxes on tipped wages or Social Security income. Estimates put the final costs beyond $7 trillion.

“We must hold that line on fiscal discipline to put the country back on a sustainable path,” wrote Rep. Lloyd Smucker, R-Pa., and colleagues.

Meanwhile, Johnson is negotiating with a core group of five Republicans from the highest tax regions in New York, New Jersey and California who claim they will not vote for any plan unless it reinstates a bigger state and local tax deduction, called SALT, for their constituents.

They called the latest proposal to triple the cap on state and local tax deductions, which is now $10,000 a year, to $30,000 “insulting.”

Trump himself has waded into the debate in uneven ways. The president told Johnson this past week that he wanted to see a higher tax rate on incomes of $2.5 million for single filers, or $5 million for couples, only to sort of back off the idea Friday.

“Republicans should probably not do it, but I’m OK if they do!!!” Trump wrote on social media.

With Republicans going it alone, over the objections of Democrats in the House and Senate critical of the tax package as a giveaway to the rich that will hurt Americans who depend on federal services, leaders will need almost every Republican on board.

One Republican, Rep. Chip Roy of Texas, a member of the House Freedom Caucus, implored his colleagues not to worry about the politics of the next midterm election and to stick to party principles.

“How about we do the job we got elected 5 months ago to do and see where the chips fall,” he posted on social media. “Cut Spending. Shrink the Deficit. Cut Taxes. Lead.”

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Associated Press writers Kevin Freking and Leah Askarinam contributed to this report.