As debate on Capitol Hill over renewing newly elected President Donald Trump’s signature tax cuts intensifies, Republicans are heading for a major fight over what could be a nearly $5 trillion price tag.
Top House and Senate lawmakers are deeply divided over what, if anything, to do about the hit to the budget that would come from renewing the series of tax cuts benefiting millions of Americans that are set to expire at the end of next year.
Some, like House Budget Committee Chairman Jodey Arrington (R-Texas), are emphasizing that the efforts should not widen the deficit amid a rising tide of federal red ink. They are seizing on the fuss surrounding Elon Musk’s bid to cut spending, claiming there are plenty of ways to cut the budget to cover costs. Possibilities include cutting back on Medicaid, repealing tax credits for green energy, and raising taxes on companies’ foreign profits.
On the other side are lawmakers like Sen. Mike Crapo of Idaho, the Republicans’ top man on taxes in the Senate, who has long argued against paying much of the cost of any tax treaty to pay.
Trump, whose position will have a major influence, does not seem concerned about the costs. He proposed trillions in additional taxes during his campaigncuts on top of those implemented during his first government. He floats the idea of using revenue from tariffs on imported goods to cover them.
The debate, which could impact not just taxes but a host of other policies, is likely to spiral out of control in the coming months. Republicans will have to resolve their differences to unlock the arcane “reconciliation process” they plan to use. It would allow them to bypass a filibuster from Senate Democrats and make changes to taxes and, they hope, immigration and energy.
“That will be the biggest challenge for the conference,” Rep. Greg Steube (R-Fla.), a member of Ways and Means, said of the Republican Party’s looming budget crisis.
House Ways and Means Committee Republicans meet biweekly with staffers in hopes of crafting a draft tax plan in January. Top aides to the leadership of the House of Representatives and the Senate are also huddled to prepare for the starting gun when Trump takes office on January 20.
Republican lawmakers will have to determine how much of their tax bill can add to the budget deficit. And the amount they choose will go a long way in determining which of the numerous tax cuts currently being considered can be honored.
In 2017, when the existing tax cuts were implemented, it took lawmakers months to determine how much to spend in total: $1.5 trillion.
Today the numbers are all much worse. The price to renew about 40 expiring facilities is now estimated at about $4 trillion, with another $600 billion in associated interest costs.
At the same time, the federal debt has nearly doubled since 2017, and the rise in interest rates means that payments on the debt have become much heavier. Servicing the debt now costs almost $1 trillion annually.
Arrington and other influential Republicans in the House of Representatives say the tax bill they are preparing should not exacerbate these budget problems.
“There’s no reason for us to do that when we have all these opportunities” to address the deficit, said Arrington, whose committee is key to the reconciliation process.
Rep. Chip Roy (R-Texas), policy chair of the House Freedom Caucus, said: “We must advance the president’s agenda – he has a mandate – but we must expect corresponding cuts to occur. or corresponding tax changes to ensure we are deficit neutral.”
“Under no circumstances should we blindly say, ‘This is the policy,’ without considering the impact on the budget deficit.”
Potential payoffs include raising rates, reducing food stamp spending, and so-called dynamic scoring, which takes into account tax revenue generated by the increased economic activity the legislation is expected to generate.
Arrington says there are other, less conventional options, arguing that Republicans should be able to include the revenues that come from the economic boost that comes with cutting regulations, something currently left out of the House budget process Congress.
That pits him against fellow Republicans like Crapo, who have adamantly opposed paying for their tax cuts. They say it is neither realistic nor necessary to try to achieve trillions in savings that would be needed to cover the costs of their tax plans.
Anything currently in law that is being extended should not have to be paid for, Crapo says, and that includes what he calls “growth-enhancing” initiatives.
That leaves new tax proposals that are not pro-growth and require offsets — an amorphous category that could potentially include at least some of Trump’s ideas, though Crapo declined to say what kinds of ideas would meet that criterion.
“I’m not going to start evaluating his proposals,” Crapo said. “I can only give you the principles.”
His counterpart in the House of Representatives, Ways and Means Chairman Jason Smith (R-Mo.), also sounded skeptical about lawmakers paying for all their tax cuts.
“Look at history: Were the Bush tax cuts paid for?” he said.
The issue of costs is further complicated by Republicans’ distrust of Congress’ nonpartisan budget scorers, and by Republican lawmakers’ often exaggerated hopes for dynamic scoring.
Many believe that forecasters are not sufficiently taking into account the likely economic benefits of tax cuts, although the current director of the Congressional Budget Office – Phill Swagel, a former Treasury official in the George W. Bush administration – has been Republicans were appointed to his post.
Last time, CBO said the TCJA would throw away enough additional tax revenue to cover 20 percent of the costs, although Swagel has warned that will be difficult to replicate because it was prompted by that law’s 14 percentage point corporate tax cut. rate. Such a thing is not being considered now.
Some lawmakers are going off the menu with their own dynamic analyses. Sen. Bill Cassidy (R-La.), another tax writer, says he believes the TJCA generated so much economic activity that it almost completely paid for itself, even though that’s hardly what the official forecasts say. So, he says, if they just expand that law, most of that will be paid for.
