Extending tax cuts to small businesses, families, and individuals will cost almost $920 billion through 2029, according to Congress’s non-partisan scorekeeper.
According to a report issued on Monday by the Joint Committee on Taxation, the cuts would increase the deficit by $1 trillion over the next ten years. Admittedly, the Committee projected economic growth of only 0.7% per year.
On the other hand, the U.S. Department of the Treasury’s report suggests the tax cuts and the overall budget would stimulate economic growth to 2.9% per year in the same period. The projected prosperity and tax revenue would be enough to offset the tax cuts.
A Politico report estimated that, following the tax cuts, all additional revenue from increased economic growth would go toward paying for them. The cost might be too high for the tax cuts to pay for themselves, further increasing debt and deficit.
All the projected figures would add to the $1.5 trillion tax overhaul from back in 2017 when the Congress passed a law featuring a wide array of temporary tax cuts such as generous child tax credits, a 20% deduction on pass-through businesses profits, and lower individual rates.
In spite of the seemingly for-the-people attitude behind the 2017 law, Democrats have criticized it for having made tax cuts for individuals and small business temporary, while making the tax cuts for corporations permanent.
The 2017 temporary tax breaks for individuals and small businesses will all expire in 2025, but Trump’s fiscal year 2020 budget request is likely to request that they be made permanent. The permanent corporate tax changes cut the rate to 21%.
Nevertheless, this decision is unlikely to sit well with the Senate. Still under Republican rule, the House attempted to make individual tax cuts permanent last year, likely in search of political support on the eve of the midterm elections. The Senate refused to advance the bill.
The next conflicting decision lawmakers will be forced to make will hit them in 2025, the expiration year for individual tax cuts. They will be forced to choose between extending the expensive cuts or raising taxes on families and small businesses right before the 2026 midterm elections.
Still, this issue is not unheard of, since lawmakers of both parties are prone to extending tax breaks into infinity rather than making them permanent. The two-party system results in members being reluctant to erase the changes they had initially inserted into the code.
Tax cuts passed in 2001, which were later enhanced by George W. Bush were set to expire in 2010. They ended up being extended for two additional years.
One must also keep in mind that the 2017 decision to enable the individual tax cuts was driven by necessity rather than a particular political opinion. Lawmakers were supposed to fit the cuts within the $1.5 trillion loss the Congress had previously allotted. The lawmakers then claimed they would vote to extend the cuts at a later time.