Sun Sentinel Palm Beach Edition
Cost of Republican tax cuts likely to go even higher
WASHINGTON — With a final tax overhaul bill in hand, congressional Republicans say they have enough votes to pass legislation this week and deliver a major victory for themselves and President Donald Trump by Christmas. But at what cost? On paper, the tax package hammered out Friday carries a price tag of a net $1.5 trillion over 10 years. In reality, the cost in the form of federal deficits is certain to be substantially higher.
That’s because of a bit of fiscal gamesmanship. Republicans agreed the tax rewrite could add up to $1.5 trillion in debt over 10 years. But to stay within that limit and add nothing to deficits beyond the decade, as a Senate budget rule requires, they put expiration dates of 2025 or earlier on almost all of the tax changes for individual taxpayers — but hardly any for corporations. The temporary breaks include the doubling of standard deductions and increases in the child tax credit.
But Republicans, including Trump, say that future Congresses will extend many of those tax cuts. Political pressure undoubtedly will be heavy to do so, though higher debt could inhibit lawmakers.
Trump predicted Saturday that the tax cuts not only will be extended but sweetened.
“Whoever the administration is years from now, they will make it, and maybe even make it more generous if we can get the economy like it should be,” he told reporters as he left for Camp David in Maryland.
Republicans are counting on something of a replay of what happened after President George W. Bush pushed through tax cuts in 2001 and 2003. Many of those had a sunset date of 2010, also to hold down the purported cost. Most were ultimately made permanent during the Obama administration, except some breaks for the wealthiest taxpayers.
Now, as then, supporters say the tax cuts will pay for themselves in spurring faster economic growth. But that is not the consensus of economists, and that did not happen after 2001. Congress’ nonpartisan Joint Committee on Taxation has estimated that the Senate tax plan, which is similar to the final bill, would shrink government revenues by about $1 trillion on net over the next decade after accounting for economic growth.
If many provisions do become permanent, experts say annual federal deficits could rise by hundreds of billions of dollars more over the 10-year period and swell even more in years beyond it. That would exacerbate what is already a grim debt outlook as public spending continues growing with an aging population, especially for health and retirement programs.
Even without tax cuts, the Congressional Budget Office projected that the national public debt, which has tripled from a decade ago to $15 trillion, would reach about 90 percent of the size of the U.S. economy by 2027; currently it is 77 percent of the gross domestic product.
Extending the temporary tax cuts could push that ratio to 100 percent or higher if the economy were to falter, increasing the risks of surging interest rates, reduced private investments and even a financial crisis down the road.
Although Republicans promote their plan as a tax cut for the middle class, their focus has been to slash the corporate tax rate. The final bill lowered that rate to 21 percent from 35 percent, starting next year.
For upper-income individuals, the top rate was lowered to 37 percent from the current 39.6 percent, and would kick in at annual income levels of around $500,000 for individuals and $600,000 for married couples.
But these and other changes in the tax code for individuals have expiration dates. A more generous deduction for medical expenses is allowed just for tax years 2017 and 2018. Most other individual benefits would sunset in 2025.