Legislation

Cost of Republicans’ tax cuts likely to be greater than they appear on paper

With a final tax overhaul bill in hand, congressional Republicans say they have enough votes to pass legislation next week and deliver a major victory for themselves and President 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 virtually 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, freely 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 future lawmakers. Nonetheless, Trump predicted Saturday that the tax cuts not only will be extended but sweetened.

Scott Greenberg, a senior analyst at the conservative Tax Foundation, said concerns about the effects from rising debt are overstated. With the dollar as the world’s reserve currency and a global glut in savings, he said, there’s no shortage of foreign money available to buy U.S. debt. Also, even as federal deficits have surged in the last decade, Treasury bonds and interest rates more broadly have remained at low levels, he said.

But Greenberg is worried about the freewheeling way in which lawmakers are making budget policies. The Senate budget rule, for example, was supposed to impose fiscal responsibility, yet Republicans circumvented it with their $1.5-trillion debt allowance and expiration dates.

“My biggest concern is [we’re] entering a period in American policymaking where lawmakers on both sides of the aisle have less concerns for deficits than they have historically,” he said. “It might be easier now for Democrats, when they’re in control of Congress, to plan deficit-financed programs.”

Republicans have long complained about rising federal debt, leaving analysts stunned by how they have rallied around — and rushed to embrace — an expensive tax bill that polls have found to be unpopular with much of the public.

Yet cutting taxes has long been a Republican mantra, supplanting deficit reduction as the top fiscal priority as far back as the Reagan era. Especially after their failure in killing Obamacare, GOP leaders have seen it as essential to notch a major legislative victory for their own political survival in the 2018 midterm election.

But here, too, they might be miscalculating. Some of the largest tax cuts in American history, including the packages approved in 1948 and 1986, didn’t avert big losses for congressional Republicans in the next election.

“They may be saying, ‘Oh, my gosh, we’re going to get slaughtered if we don’t pass a tax cut,’” said Joseph Thorndike, director of the Tax History Project at Tax Analysts, a nonpartisan research forum. “History says you may still get slaughtered.”

don.lee@latimes.com

Follow me at @dleelatimes


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