There’s no sugar coating it: The Senate is poised to adopt sweeping tax cuts that will add well over a trillion dollars to the debt.
Instead of being deficit neutral (in other words – paid for) which Republican leadership originally promised, we’re getting a package which – even if you were to believe in all the gimmicks economic growth revenue pixie dust – still will add more than $1 trillion to the debt.
That’s according to none other than the Joint Committee on Taxation, Congress’ nonpartisan scorekeeper. In reality the actual total will be quite a bit more and perhaps double. To make matters worse, this bill is moving through the Capitol faster than a greased piglet in a state fair contest, making it impossible to understand what this extremely consequential legislation would do.
What do we know?
You’ve probably heard about all the various tax cuts and credits that individuals will get. Guess what? Every single one of them expires at the end of 2025. Every. Single. One. Of. Them. On the business side of the code? They’re nearly all permanent.
There are two reasons for this:
One is that this package is moving under a process called budget reconciliation. That limits debate in the Senate and enables the package to advance with a simple majority. But, this process also puts limits on the legislation. Everything in it has to be revenue related and the legislation cannot increase deficits after ten years. That last clause is why all the individual breaks expire early – to limit the cost. To underscore that point, the most recent JCT analysis of the bill found that in 2019 the individual provisions would reduce revenue by $157 billion.
The same analysis found that in 2027, the last year of the bill, letting those provision would increase revenue by $75 billion. C’mon – that’s a gimmick. Leadership figures that when they are about to expire in 2025 a future Congress will extend them. And that will add even more to the deficit.
One of the bill’s skeptics, Sen. Bob Corker (R-TN) summed up our feelings with the individual side of the package nicely: “Throw it in the trash can, and take it directly to the incinerator.”
But the gimmicks don’t stop there. A provision to earn “revenue” from drilling in the Arctic National Wildlife Refuge was added. While that sweetens the deal for Senator Murkowski (R-AK), at best it raises a paltry $100 million for US taxpayers – in a bill that saddles us with a trillion in debt – and puts us at significant risk of long-term liabilities down the road.
There are some other arbitrary expirations as well. When the tax bills were first discussed one of the main pillars was immediate write-off of business expenses in the Senate bill that expires in 2022. How does that affect the JCT score? Revenue loss of $40 billion in 2019 turns into a revenue gain of $22 billion in 2024.
Again, this is not plausible.
As we went to press, something changed with this provision to gain a vote. Don’t ask us what the change was – because it’s not public.
The additional costs don’t stop there. The Congressional Budget Office estimated that the additional interest costs to service the increased debt would amount to another $200 billion over ten years.
Even the deficits within the ten-year window has impacts.
There is a “Pay-As-You-Go” law that requires the Office of Management and Budget to keep a scorecard of legislation that affects revenue and mandatory spending. If in any given year a bill passes that increases the deficit, OMB is supposed to the total by ten and lop off mandatory spending that amount each year for the next decade. This legislation has a PAYGO impact of more than $100 billion per year. Cuts to Medicare are limited to four percent (and Social Security is off limits).
That would result in a roughly $25 billion cut to Medicare next year. CBO estimates that there isn’t enough remaining mandatory spending to meet the PAYGO requirements! But here’s where the gimmick comes in. There has never been a PAYGO sequester (across-the-board) cut.
If the Tax Cuts and Jobs Act is enacted, the very next piece of legislation will be one that would waive the PAYGO cuts. Republicans are confident that when faced with a vote for or against a bill that would eliminate cuts to Medicare, Democrats would go along. Pretty cynical.
You’ll note that no one is calling this tax reform. That’s because it’s not. It’s been more than 30 years since comprehensive tax reform was enacted in 1986. That bill came together because of the hard work of a Republican President, Democratic House, and Republican Senate. That bill passed the Senate 97-3. This bill is looking at a bare majority.
Lawmakers should go back to the drawing board and come up with revenue neutral, bipartisan tax reform that the country sorely needs and deserves.