A $715 billion tax cut turns into a $4.5 trillion sales job

Yahoo

3 days ago

Republicans minimized the size of their tax cuts when they pushed them through Congress, using a controversial accounting method to make most of them appear to cost the federal government nothing.
But now a new mantra is emerging from lawmakers: Their tax cuts were huge.
As they sell the package to voters, President Donald Trump and other Republicans are emphasizing how big the tax cuts are — often claiming, wrongly, that they are the largest in U.S. history.
Implicit in the shift: Republicans are embracing the conventional budgeting 'baseline' they scorned during legislative debate because that now makes their tax cuts appear more impressive.
Under the so-called current policy baseline Republicans used in Congress, their plan was projected to cost $715 billion over a decade — peanuts, in the world of tax cuts and a mere raindrop in the country's $36.8 trillion debt.
But using a conventional yardstick means their tax cuts cost $4.5 trillion — not the largest ever, but sizable enough to at least be in the conversation.
That has Democrats crying foul, with Sen. Jeff Merkley of Oregon, the top Democrat on the Budget Committee, complaining Republicans' boasts come after they used a 'budget gimmick' to 'claim that their massive tax giveaway to billionaires cost next to nothing.'
Some Republicans aren't entirely comfortable with it either.
'I can't control what other people say,' said Sen. Ron Johnson (R-Wisc.), a member of the tax-writing Finance Committee. He said he instead tells voters Republicans averted a $4 trillion tax increase that would have come if lawmakers hadn't extended a slew of temporary tax cuts that were slated to expire at the end of this year.
It's an ironic addendum to the long-running debate in Washington over Republicans using the current policy baseline to help pass their legislation, signed into law a little more than four weeks ago. And it comes as lawmakers now turn to selling their constituents on the package, which also includes controversial cuts in Medicaid and other programs.
Early polling shows the package is not popular, though most taxpayers won't begin to benefit from the tax cuts until they file their returns next spring. Many are in line for extra-large refunds because Republicans made a number of provisions, including an enlarged Child Tax Credit and a more generous deduction for state and local taxes, retroactively available for the current tax year.
During congressional consideration, Senate Republicans were adamant that the correct way to tally the cost of their plan was by comparing the changes to what the government was currently doing, not what was carved into law, as budget scorekeepers normally do.
So, by that light, extending current tax policies into next year should cost nothing, and not even be seen as a reduction in taxes. The only tax cuts that counted, Republicans said, were new provisions like Trump's proposals to reduce levies on tips, overtime, auto-loans and seniors, along with enhancements of existing breaks, like a $200-per-child increase in the Child Tax Credit.
The tactic drastically reduced the sticker price of the plan, no small deal given concern over federal red ink.
And it made it much easier for lawmakers to make many of their provisions a permanent part of the tax code. Otherwise, under the Senate's internal rules, they would have had to find a lot more pay-fors to cover the cost of making permanent breaks for business investment, research and interest expenses.
But that current policy baseline now not only makes their tax cuts look less consequential, it also shrinks the anticipated benefits to their constituents.
Under the conventional baseline that Republicans spurned, people making between $60,000 and $80,000 would see their taxes fall by an average 12 percent in 2027, the official Joint Committee on Taxation said in an analysis last week. But those people would only get a 4.2 percent cut under a current policy baseline.
Nevertheless, days after Trump signed the bill into law, Senate Republicans bragged on X that they had just cut taxes by $4.3 trillion.
And lawmakers are now routinely claiming to have passed the largest-ever tax cut, though with a $715 billion price tag, the legislation is not significantly bigger than tax cuts passed during the coronavirus outbreak.
The more conventional $4.5 billion estimate moves the legislation up the all-time-biggest-tax-cut list, though there were still larger ones, such as Ronald Reagan's 1981 tax cuts and when Harry Truman cut wartime taxes in 1945.
That hasn't deterred Republican claims to the contrary.
'We delivered the largest tax cut in American history,' Trump said recently.
Sen. Thom Tillis (R-N.C.) called questions of which baseline Republicans should use when talking about the tax cuts with voters 'nerdy' and 'technical."
'That's a great discussion for economists — that's not necessarily a great discussion for a politician on the campaign trail,' he said.
But other Republicans say they are careful to stipulate that they avoided a $4 trillion tax increase, while stopping short of claiming to have cut taxes by that much.
'I always talk about how we stopped the largest tax increase in American history — I think that's a pretty compelling argument,' said Sen. Steve Daines (R-Mont.), another tax writer.
To further complicate matters, House Republicans did in fact use a conventional baseline, not a current-policy one, when they wrote their first draft of the legislation.
Marc Goldwein of the Committee for a Responsible Federal Budget said he doesn't have a problem if those GOP lawmakers tell voters they cut taxes by $4.5 trillion. The issue, he said, is when Republicans claim the tax cuts were small when they're talking about the impact on the government's debt but say they're big when talking about the benefits to voters.
'You can't jump back and forth,' said Goldwein. 'The problem is the inconsistency.'