Lots of tax cuts, not a lot of growth?

Politico

27-01-2025

Presented by
ISO SOME GROWTH POLICY: One of Republicans' longstanding arguments for cutting taxes is that it helps spark the economy.
The problem with that argument now? The parts of the Trump tax cuts that expire at the end of the year don't do a lot to spark the economy, as Pro Tax's Brian Faler reports this morning.
GOP lawmakers are aware of this, mind you, and looking for other tax relief ideas they might be able to add to a tax bill this year to further goose up the growth aspect.
But the bottom line is that Republicans knew when they passed the Tax Cuts and Jobs Act in 2017 that the permanent policies in the law — like the drastically lower corporate rate — did the most to spur the economy. They also made a bet that a future Congress wouldn't allow the tax cuts helping individuals, which provided less economic zing, to expire.
Supporters of the law have said that allowing individual rates to rise or a special 20 percent deduction for pass-through businesses to expire would put a crimp on businesses.
Still, both official scorekeepers and outside analysts aren't buying it. CBO has even said that letting all the temporary TCJA provisions go away would be better for the economy in the long-run, while groups like the Penn Wharton Budget Model find just a trickle of growth from their extension.
MORE ON THAT in a bit, but first thanks for coming back for a 'go get that refund' version of Weekly Tax. Or maybe that's a 'controversial fourth down call' version.
A first for America: Today marks 31 years since a Hawaiian named Chad Rowan, also known as Akebono, became the first non-Japanese sumo wrestler to achieve the top rank of yokozuna.
Bowl us over with your great scoops.
Email: [e-mail], [e-mail], [e-mail] and [e-mail].
You can also reach us on X at @berniebecker3, @tobyeckert, @brian_faler, @ben_guggenheim, @POLITICOPro and @Morning_Tax.
Want to receive this newsletter every weekday? Subscribe to POLITICO Pro. You'll also receive daily policy news and other intelligence you need to act on the day's biggest stories.
WE'RE WORKING ON IT: Here's the second problem for Republicans.
Leading GOP lawmakers say they're looking at a lot of additional tax ideas that would give a boost to the economy. But a lot of the extra floated tax cuts that already are front-and-center in this year's debate wouldn't actually do that.
Republicans will almost certainly have to include some kind of relief from the $10,000 cap on state and local deductions to win the support of more than a dozen GOP lawmakers from states like California, New Jersey and New York.
Not much growth would come from that, nor would it come from some of the proposals to greatly expand the Child Tax Credit, which currently maxes out at $2,000-per child and would drop to $1,000 if no tax deal arises this year.
Another idea to keep in mind: President Donald Trump went to Las Vegas on Saturday for his first rally after starting his second term.
That location was no accident, either, as the event was billed as a chance for Trump to further pitch his idea to eliminate taxes on tips.
Now, the president didn't really use that opportunity to pound an 'economic-focused message,' as his aides put it, even with 'no tax on tips' emblazoned behind him.
But those closely watching this year's tax debate believe it's quite likely that some kind of tax exemption for tips appears in a final deal, and congressional staffers have already been working through the various permutations of that idea — like whether to include payroll taxes, and how to install limits to prevent salaried workers from repurposing their income.
This probably should be no surprise — 'no tax on tips' was the first of Trump's various targeted tax cut ideas from the campaign, the one that got the most attention and also happens to poll pretty well.
Rohit Kumar of PwC also noted on Friday that excusing taxes on tips also wouldn't be as expensive as some of Trump's other tax cut proposals. 'It has the virtue of being very popular and not terribly expensive, and you can see why it moves to the front of the line,' Kumar said at a media breakfast hosted by the company.
It's also not an idea that Republicans can necessarily count on for lots of growth, even as they also grapple with big-picture questions like the trade-off between how progressive a cut 'no tax on tips' should be and how much it should cost.
In fact, lots of economists believe eliminating taxes on tips is a bad idea — and there appears to be some uncertainty about how it might affect the economy, in no small part because it's such an untested idea.
THE TIME IS NOW: These and many other questions are hanging over House Republicans as they head to a Trump property in Florida for a retreat.
Those kinds of details — that is, the contours and costs of individual tax proposals — might not need answers yet.
But GOP lawmakers still have a lot to decide while they're down there, particularly if they want to meet their goal of considering a fiscal framework in the Budget Committee as soon as next week, as our Meredith Lee Hill noted over the weekend.
That includes specific instructions for how much taxes can be cut in a reconciliation bill, and the scale of cost savings required of a variety of committees. Republicans already have floated a variety of potential spending cuts, including a good number aimed at safety net programs, and some potential revenue-raisers as well.
GETTING CLOSE TO A SWEARING-IN: Scott Bessent, Trump's pick for Treasury secretary, got a bit of a rough reception from Democrats on the Senate Finance Committee during his confirmation hearing.
But the Senate floor consideration of his nomination has been rather low-drama, particularly compared with some of the president's other picks. Fifteen Democrats in all supported Bessent in a procedural vote on Saturday, setting him up for what looks to be an easy final vote as soon as today, as our Michael Stratford noted.
GOOD TIMING: Today also happens to be the opening day of the tax filing season, which is coming at a particularly stressful time for the IRS.
Trump put extra restrictions on the IRS in his executive order for a federal hiring freeze last week, giving a soon-to-be Secretary Bessent a say in when the agency could start bringing on staffers again.
He then underscored why the agency currently is in a particularly vulnerable position at that Las Vegas rally on Saturday.
The president repeated the at best misleading claim that the IRS was hiring 87,000 new agents with the extra funding granted by Democrats during the Biden administration.
In fact, Trump bumped that up to 88,000 and cracked that he would seek to fire them all — or force them to transfer to border control.
All this attention is likely to put even more of a microscope on the IRS and its handling of the filing season, after the agency has dealt with a variety of challenges in recent years, like a pandemic-induced backlog of unprocessed tax returns.
Generally speaking, close observers of the IRS have said they don't think the hiring freeze will have too much direct effect on the filing season, because most of the temporary workers that the agency hires for this part of the year should already be on board.
But that's not a unanimous view.
'Freezing hiring at the IRS will severely impact the level of service provided to American taxpayers when they need it most,' Doreen Greenwald, the national president of the National Treasury Employees Union, said last week.
And even those who believe the freeze won't have much impact on filing season, like the American Institute of CPAs, say they'll be watching the situation closely.
'We are greatly sensitive to the filing season service challenges for members and taxpayers,' Melanie Lauridsen of AICPA wrote in a LinkedIn post on Friday.
Around the World
Bloomberg: 'Brazil Government Will Cut Some Import Taxes to Lower Food Costs.'
CNN: 'Edinburgh to tax tourists for overnight stays.'
BBC: 'Farmers rally against inheritance tax changes.'
Around the Nation
Missouri Independent: 'Gov. Mike Kehoe holds to tax cut pledge as he forecasts a tighter Missouri budget.'
Chicago Tribune: 'Municipalities worried about impact of Indiana Senate property tax bill.'
Honolulu Civil Beat: 'Green Wants To Extend Excise Tax Surcharge On Neighbor Islands.'
Also Worth Your Time
Tax Notes: 'Republicans Are Trashing the CBO Before They Have a Tax Bill.'
Bloomberg: 'Supreme Court to Weigh Tax-Supported Religious School Case.'
Bloomberg Tax: 'Trump Freeze to Chill Regulations on 'Double-Dipping,' Book Tax.'
Did you know?
Akashi Shiganosuke, who lived in the first half of the 17th century, is thought to be the first yokozuna.