Democrats last week won the largest House and Senate majorities for either party since Barack Obama’s 2008 landslide. It’s no secret what led to this Blue tsunami: after being elected in 2024 on a platform to “end inflation and make America affordable again,” President Trump spent two years doing precisely the opposite.
The new majority’s first priority in delivering a real affordability agenda will be fixing Trump’s biggest mistakes, such as by finding a responsible way to end the shambolic war with Iran that increased costs by nearly $1200 per American household. To that end, Democrats are likely to begin the next Congress by pursuing three consensus economic policy goals:
Reversing at least some of Trump’s tariff increases, which have cost the average household roughly $1,100;
Restoring the enhanced premium tax credit subsidy that expired last year, leading to brutal premium increases for middle-income Americans who buy health insurance on the Affordable Care Act (ACA) exchanges; and
Canceling deep cuts to Medicaid and food assistance in last year’s One Big Beautiful Bill (OBBBA) that are about to take effect.
These are directionally good goals that victorious Democrats of all ideological stripes campaigned on. But accomplishing them will cost a significant amount of money, and they represent only the beginning of Democrats’ policy ambitions. The new Congress must recognize that they — and the next president — are about to inherit a massive budget hole from the Trump administration. Digging it deeper could worsen the very affordability problems Democrats are hoping to solve and squander the inroads they’ve just begun to build in red states. A durable affordability agenda must not only walk back Trump’s missteps but also do it in a fiscally responsible way.
Democrats Can’t Afford to Deepen the Fiscal Hole They’re Inheriting
Under Trump, the federal government is currently spending $2 trillion more per year than it collects in taxes. As I previously explained on our Substack, these bloated budget deficits are already adding fuel to the cost-of-living problems that pushed voters to revolt during the midterms, both by putting direct pressure on prices and by pushing up borrowing costs for everything from credit cards to car loans to mortgages. If Democrats add even more red ink, it could make the very affordability crisis they were elected to fix even worse — both now, and under a new (possibly Democratic) president in 2029.
Voting for larger deficits would also be a bad look for Democrats who finally cracked the red-state wall holding their party back from transformative majorities in part by lambasting Trump’s fiscal recklessness. Think candidates like Annie Andrews, who flipped South Carolina with a 9-page pledge to tackle the national debt, or Texas’ James Talarico, who at a CNN town hall declared that the debt was “a moral emergency, because we are stealing from future generations.” For their party to turn around and kick off its majority with bills adding trillions to that debt would be a gift to Republicans, particularly when voters blamed overspending as Democrats’ biggest contribution to inflation in 2022 and 2024.
And we are, in fact, talking about an agenda that could cost trillions. The Center on Budget and Policy Priorities estimates that simply restoring the expired premium tax credit enhancement and canceling OBBBA’s cuts to Medicaid and food assistance will cost more than $2 trillion over 10 years. Cutting Trump’s tariffs would have costs as well, although the shaky legal foundation used to enact these import taxes makes it difficult to estimate exactly how much revenue would really be lost from their repeal.
Reversing Trump’s missteps is also only a starting point for the Democratic agenda. Both the moderate New Democrat Coalition and the left-wing Congressional Progressive Caucus have each proposed lengthy wishlists that would expand federal support for child care, clean energy, housing, and more. The final cost of the new majority’s agenda could well eclipse that of OBBBA.
The easiest step for Democrats should be to pay for their initial spending ambitions by repealing tax cuts in OBBBA. Considering that the looming Medicaid and food assistance cuts were used as a partial offset for tax cuts, it makes sense to pair their repeals.
Unfortunately, much of the party is rowing in the opposite direction. Rather than undo OBBBA’s tax cuts, some Democrats are seeking to outflank them. Many have spent the past year proposing to extend or expand OBBBA’s deeply flawed tax deduction for tips, or eliminate taxes on Social Security benefits that primarily affect high-income retirees. A few have gone even further with sweeping income-tax cuts that would cost several trillion dollars.
Every dollar that is sunk into a substantively dubious tax cut is a dollar that can’t be used to advance the core priorities of the Democratic agenda or the underlying fiscal imbalance. It’s also a questionable political choice, considering that comparable GOP tax cuts enacted last year seemingly did nothing to blunt last week’s historic midterm wipeout. A tax cut (or spending program) that polls well and looks good on a bumper sticker means nothing when people feel far more pain from the effects of economic mismanagement.
Of course, it’s unlikely most of these policies will become law while a Republican is in the White House over the next two years. But the new majority must still be thoughtful about how messaging bills today could fiscally bind the next Democratic president, either because that president will be politically boxed into supporting it, or because Trump might just go ahead and sign the bill Congress sends him to pocket a political win for himself while leaving his successor to pick up the tab.
Setting Up the Next Democratic President for Success
With those concerns in mind, there are three things the new Democratic Congress should be doing to set the party up for long-term success.
First, Democrats should figure out how they might pursue smart reforms that could be less expensive than simple restorations of pre-Trump spending policy. For example, at a time when the underlying costs of exchange plans are growing roughly twice as fast as employer-provided insurance plans, it would be better to get those costs under control rather than just ask taxpayers to foot the bill. A good starting point for lawmakers would be a framework PPI proposed last year that would permanently make middle-income families eligible for subsidies, cost half as much as simply restoring the pandemic-era subsidy enhancement, and fully pay for it with a down payment on systemic reform to actually cut the cost of health care. Not only would this be more fiscally sustainable, but it could help improve affordability for the 93% of Americans who don’t get health insurance from the ACA exchanges.
Similarly, the OBBBA spending cuts should probably not be repealed in their entirety. OBBBA achieved significant savings in Medicaid by cracking down on state financing gimmicks long derided by health policy experts across the political spectrum. Reversing those reforms is hardly the ideal way to pump money back into the program. The work requirements slated to take effect next year are likely to be far more harmful, in part because any eligible beneficiaries could lose their coverage for simply failing to keep up with complicated new paperwork rules. But Democrats must tread carefully even there, because work requirements are conceptually popular among an electorate that despises anything resembling “waste, fraud, and abuse.”
Next, the new Congress should use its two-year term to hammer out priorities for an affirmative Democratic policy agenda. President Biden’s Build Back Better agenda largely failed because Democrats tried to pursue more spending programs than they had the votes to approve, let alone offset the cost. Instead of trying to compile the most sweeping progressive wishlist, as many presidential candidates sought to do in 2020, the new majority should work to figure out what the most important items on the party’s agenda are and how they can pay for those priorities. Including PAYGO rules that require offsetting new tax cuts or automatic spending as part of the House rules package — and actually adhering to them — would be a good first step that helps push lawmakers to grapple with the necessary trade-offs.
Not all spending is created equal, so Democrats should prioritize public investments that will get taxpayers the best bang for their buck. An OECD study found that a dollar of spending on scientific research, education, or infrastructure increased private investment by another two dollars, on average. The budget for these kinds of public investment spending has fallen to historically low levels in recent years, and reversing the decline could help power economic growth that cuts costs instead of simply shifting them to taxpayers. On the other hand, subsidizing demand for goods and services already in short supply will largely serve only to drive costs higher. For example, policies like tax incentives for building homes make a lot more sense in the current economic environment than tax incentives for buying them.
Finally, Democrats should begin rallying around ideas for tackling the underlying fiscal challenge facing the federal government — not just paying for their new initiatives. For decades, the gap has been growing between what our government spends on seniors through Social Security and Medicare, and the taxes workers pay to fund them. This particular problem will come to a head in 2032, when major trust funds that support the programs will run out and lead to automatic benefit cuts if Congress takes no action. That means the new senators elected last week and the next Democratic president will need to address the financial shortfalls of our government’s largest existing spending programs before the end of their first term.
No doubt, the first tools they’ll reach for are tax hikes on the rich (as they should, in an era of high economic inequality). But tax increases on billionaires can only go so far: As I wrote in 2024, Democrats cannot hope to pay for both existing programs and their new spending ambitions while adhering to anything resembling their Biden-era pledge not to raise taxes on anyone making under $400,000 — especially now that OBBBA has cut taxes for everyone even further. Spending cuts, broad-based tax increases, or some combination of the two will eventually have to be part of the solution.
Fortunately, there is a large menu of options Democrats can draw from. PPI previously published a comprehensive budget blueprint with six dozen recommendations that, if adopted in their entirety, would fulfill progressive policy ambitions while putting the federal budget on a path to balance by 2050. Adopting just half of their savings would be enough to keep the debt from growing faster than the economy. And if policymakers want more alternatives, five other think tanks compiled comprehensive fiscal frameworks of their own. A bipartisan fiscal commission could also help sift through these ideas, if Democrats don’t want the political headache of doing so themselves.
However they choose to go about it, Democrats must confront the fiscal reality rather than pretend it doesn’t exist. Many conservatives are happy to starve the government of revenue now and wait for the resulting deficits to undermine confidence in government so voters embrace spending cuts down the line. But Democrats are the party that wants the government to achieve big things. That requires making sure their agenda can be funded sustainably, so that voters will support programs that will work over the long run.
