Republicans lay groundwork for ‘total tax cliff' at end of Trump's term

Yahoo

a day ago

Congressional Republicans are laying the groundwork for a tax cliff at the end of President Trump's term in office.
While the conference is pushing to make the 2017 Trump tax cuts permanent, additional measures geared toward working-class Americans are being slated for expiration at the end of 2028.
'It means that's going to be an issue in the next presidential race,' House Freedom Caucus Chair Andy Harris (R-Md.) said Tuesday.
The major expiring tax breaks in the House-passed version of Republicans' domestic agenda bill are boosts in the standard deduction, the deduction for seniors, and the child tax credit, along with the cancellation of taxes on tips, overtime pay, and car loan interest.
Budget hawks are saying this sets up a 'tax cliff' in the legislation similar to the one Republicans are now trying to surmount, since most of the 2017 Trump tax cuts expire at the end of this year.
'There's a total tax cliff in there. There's about $1.5 trillion worth of taxes that expire in four years, five years, which means what? In five years, they'll just keep them going. This is why we end up with the same problem,' Rep. Chip Roy (R-Texas) said last week.
'It is 100 percent a gimmick to have tax cuts that you're putting in place for four or five years,' he added.
The legislation is likely to undergo substantial changes in the Senate, including a change in the accounting baseline that will allow trillions of dollars worth of deficit additions coming from the extension of previous tax cuts to be ignored.
But senators are sounding open to maintaining the split between making the 2017 Tax Cuts and Jobs Act (TCJA) permanent and allowing the additional cuts for workers, families, retirees and consumers to expire.
'The general feeling of Senate Finance is the TCJA — we need to make that permanent. We need to make the business provisions — the expensing, the R&D provisions — we need to make those permanent. The other things, I think we should discuss it,' Sen. Ron Johnson (R-Wis.), a member of the Senate Finance Committee, said last week.
Sen. John Hoeven (R-N.D.) stressed the objective of overall permanence while saying the additional cuts could be subject to change.
'Our intent is to make the tax cuts permanent. Now, something like the child tax credit, with a huge transfer payment aspect to it, I'd have to say that's something I'd have to check on. Other tax cuts and reductions, depending on score and how the votes come down, that could change,' he said last week.
The expiring cuts are mostly ones President Trump proposed while he was on the campaign trail.
They appealed to various constituencies and came fast and furious in the run-up to the election. Seven different targeted tax proposals were floated in September and October, according to a tally by news agency Reuters.
Trump proposed making auto loan interest fully deductible at a speech in October in Detroit, the capital of the U.S. auto industry.
He pitched getting rid of taxes on tips in June in Las Vegas, Nev., a battleground state with an enormous hospitality sector.
He proposed a tax credit for family caregivers at a rally at Madison Square Garden in New York, a state where more than 4 million people take care of loved ones.
Many in the policy establishment — both left-leaning and right-leaning — view Trump's additional cuts as ancillary, if not altogether undesirable.
'I would prefer those things would be completely off the list,' Daniel Bunn, president of the Tax Foundation, a conservative think tank in Washington, told The Hill in November. 'It's not good policy. It does not move in the same direction that the 2017 reforms work.'
William Gale, co-director of the more liberal Urban-Brookings Tax Policy Center, wrote in a commentary last year that canceling taxes on tips was a bad idea.
'The obvious problem is that the proposals are inconsistent with sound tax policy. The less obvious problem is that exempting tips would not even help the vast majority of low-income workers,' he wrote.
While senators sound open to keeping the division between permanent and temporary tax cuts, they're also wary about creating another tax cliff that is likely to factor into political debates in the future.
'They're doing that for only four years, and all of a sudden that stops? I'm not real high on tax policy that expires,' Johnson said of the no-tax-on-tips provision. 'If it's good enough to include, let's make it permanent. Let's have that discussion.'
The Senate has a lot more room to work with than the House, since its budget baseline for the bill could allow about $5.5 trillion in expiring tax cuts to be left out of the accounting.
However, conservatives in both chambers have expressed concerns about the potential deficit impact of the GOP bill, which has rattled financial markets and spurred a sell-off in the bond market.
The nonpartisan Congressional Budget Office (CBO) estimated last week that the House's version of the plan would add $2.4 trillion to the nation's deficits over roughly the next decade.
In a follow-up analysis requested by Democrats, Congress's official budget scorer estimated additional interest costs resulting from the plan would amount to $551 billion over a decade — a change that would 'increase the cumulative effect on the deficit to $3.0 trillion.'
While top Republicans have sought to discredit the CBO's scoring of the measure, there has been distress in both chambers, as well as the White House, over the overall cost and the fact that it is projected to grow the economy by just 0.03 percent.
The Joint Committee on Taxation (JCT) estimated the bill would grow the economy from 1.83 percent to 1.86 percent over the long run, representing little change from the Federal Reserve's latest prediction of 1.8 percent made prior to the passage of the legislation in the House.
'The Democrat inspired and 'controlled' Congressional Budget Office (CBO) purposefully gave us an extremely low level of growth, 1.8 percent over 10 years — how ridiculous and unpatriotic is that!' Trump wrote on social media earlier this month.
One of the JCT's models shows the legislation reducing U.S. capital stock by 0.9 percent over the budget window, leading to an overall decrease in economic output.
'The first and second half effects result in a decrease of 0.1 percent on average over the entire budget window,' the JCT found.
Democrats have seized upon the expiring cuts that Trump proposed as evidence that the bill is skewed toward the wealthy — though lower income tax rates for lower earners will be made permanent as part of the bill.
'Why is this bill designed to take away some of the benefits that you claim people are going to have?' Rep. Gwen Moore (D-Wis.) asked Treasury Secretary Scott Bessent during a hearing Wednesday. 'The senior tax credit expires. … No taxes on tips expires.'
Despite locking in lower tax rates for lower earners, forecasts project the House-passed tax bill will benefit higher earners more and will redistribute wealth from the bottom to the top of the income spectrum.
Half of the bill's passthrough deduction alone, which was worth more than $200 billion in 2022, went to the top 1 percent of taxpayers by adjusted gross income, according to the JCT.
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