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2025-01-15 20:54:59 UTC
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PermalinkWashington Post
Wed, January 15, 2025 at 9:00 AM CST 5 min read
Republican plans to pass a massive new tax cut in the early days of
President-elect Donald Trump's second term are running into a major
obstacle: the price tag.
Extending Trump's 2017 tax law would add $4.6 trillion to the national
debt over the next decade, according to the Congressional Budget
Office, lawmakers' nonpartisan bookkeeper. But now some leading GOP tax
writers are arguing that extending the law wouldn't add to the nation's
$36.2 trillion deficit at all.
Their proposal, though arcane, is about more than accounting.
In 2017, Trump's Tax Cuts and Jobs Act lowered rates for businesses and
individuals in every income bracket, though benefits were concentrated
among the highest earners. The business tax cuts are permanent already,
but the individual cuts expire at the end of this year, meaning most
Americans will face a major tax hike next year unless Congress passes
new legislation. Trump also promised new policies on the campaign
trail, including ending federal taxes on tips and overtime wages.
Using a process called "budget reconciliation," the GOP could dodge a
Democratic filibuster in the Senate. But for that to work, Republicans
- who will govern with slim margins in both chambers of Congress - must
agree on how much they're willing to add to the national debt.
That makes the stakes quite high for the internal Republican dispute
over how to price the tax cuts - which could determine how aggressive
Trump and the GOP will be in pushing for new tax cuts and spending
reductions.
Already, some fiscal conservatives are voicing concerns about adding
trillions more red ink to the nation's books, and they want to use the
tax bill to codify GOP campaign promises to slash government spending.
The House is generally far more sensitive about budget matters than the
Senate, and the GOP majority in the lower chamber is stocked with
deficit watchdogs who have a reputation for sinking even Trump's
priorities if they're too expensive. The Senate is eager to chalk up an
early win for the incoming president, with less concern about the cost.
"You do have to pass a [budget] resolution eventually. We kind of have
to agree," Sen. Josh Hawley (R-Missouri) said. "And I just hope, I said
this to my leadership, we need to get moving on that. I don't know how
much value there is in an extended standoff between the House and the
Senate."
Typically, lawmakers would look for spending cuts to offset the revenue
lost by extending the cuts. House Budget Committee Chair Jodey
Arrington (R-Texas) discussed a "menu" of fiscal policy choices at a
GOP policy lunch last week. The options included steep cuts to food
stamp programs, capping Medicare payments and reversing President Joe
Biden's climate investments, among other policies.
"If we unleash this economy, through tax cuts, deregulation, smart
energy policies, and at the same time, bend the curve on mandatory
spending by trillions of dollars, that's more than we've ever done to
restore the fiscal health of this nation in the history of this
nation," Arrington said.
But some of those changes would be politically explosive. So leading
GOP tax writers are considering another strategy they hope will set the
tax bill on a glide path.
Because the tax cuts are already in place, some Republicans argue that
a new bill to extend them would not incur additional costs to the U.S.
Treasury. It's analogous, they say, to renewing a Netflix subscription
- the cost continues month after month, and many consumers would not
consider the recurring payment a new expense.
"It recognizes reality," said Senate Finance Committee Chair Mike Crapo
(R-Idaho), the leading proponent of the approach, which is called a
"current policy" baseline.
The more conventional approach for 10-year budget estimates is to use a
"current law" baseline. Under current law, federal revenue is expected
to go way up next year when the tax cuts expire. So a bill to extend
the tax cuts would rob the Treasury of that big burst of new revenue.
"Current policy baseline, I consider it to be a made-up term - made up
to avoid the difficulty of the fiscal impact," said Rep. David
Schweikert (R-Arizona), who chairs the bicameral Joint Economic
Committee, which oversees economic policy.
There is recent precedent for using a current policy baseline. In 2013,
Jeff Zients, then a top budget official in the Obama administration,
argued that Congress should use that metric when extending George W.
Bush-era tax cuts. Zients, now Biden's chief of staff, said he
preferred that baseline "since it measures changes relative to the
status quo."
But budget experts largely reject that framework. Even if policymakers
insist that the federal government is reducing its borrowing using the
current policy baseline, the U.S.'s creditors don't see it that way,
said Maya MacGuineas, president of the nonpartisan Committee for a
Responsible Federal Budget. Bond purchasers will demand higher interest
rates as compensation for taking on a riskier investment.
"Even if we say we're not borrowing, we still have to go ahead and
borrow the money, and someone has to be willing to lend it to us,"
MacGuineas said. "And right now, the concerns about our huge and
growing levels of debt can make that very risky for the overall
economy."
Arrington, who as Budget Committee chair will have huge influence over
the reconciliation process, said that even using Crapo's favored
"current policy" baseline, a tax bill that is not accompanied by other
fiscal policy would still increase the national debt in reality - even
if it's not reflected in the spreadsheets.
"I don't get caught up in the CBO accounting," Arrington said. "What I
get caught up in is any real impact to the deficit and what we have to
do to mitigate that. Either way you do it, even if you assume current
policy, there's still an adverse impact to the deficit."
Whatever the cost, Republicans are eager to get going.
"We must not leave families and small businesses waiting for Congress
to do the right thing and provide tax relief at the 11th hour. We must
make the Trump tax cuts permanent as soon as possible," House Ways and
Means Committee Chair Jason T. Smith (R-Missouri) said at a hearing
Tuesday.
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