A tale of two budgets: America needs fiscal cues from Germany

Berlin is relaxing its austerity rule for good reasons while Washington appears to have abandoned all fiscal responsibility

- BARRY EICHENGREEN

Recent weeks have been momentous for government budgets in the US and Germany. In the US, both Houses of Congress passed versions of President Donald Trump's One Big Beautiful Bill, which Trump signed on the US Independence Day, July 4. In Germany, meanwhile, Chancellor Friedrich Merz's government agreed to the outlines of a 2025 budget and a spending path for the rest of the decade.

Both fiscal plans augur larger budget deficits and higher debt. But that is about all they have in common.

The US budget will make permanent Trump's 2017 tax cuts and add exemptions for tip income, overtime pay and loan interest on domestically assembled motor vehicles. It will 'pay' for these provisions—if that's the right word—by cutting healthcare and food assistance for low-income households and by eliminating a range of clean-energy-related tax credits.

There are so many negative things to say about Trump's Big Bad Bill that it's hard to know where to start.

To begin with, the legislation is massively regressive, combining permanent tax cuts for corporations and the wealthy with reductions in support for the poorest families.

By phasing out tax credits for rooftop solar, electric vehicles and zero-emission electricity, it is a disaster for the environment.

Given reductions in science funding and the addition of new taxes on universities, it is hard to imagine how it will unlock a tsunami of productivity growth in America.