Opinion Here’s a dirty little secret about Trump’s tax cuts
This past week, more than 70 Republican lawmakers introduced a bill to make permanent the 2017 GOP-passed tax cuts, large chunks of which are scheduled to expire in 2025. The new bill’s lead sponsor, Rep. Vern Buchanan (Fla.), credited the original tax cuts for “historic economic growth” and promised more “prosperity” ahead if they’re extended.
The White House, among others, has repeatedly attacked the proposed Trump tax-cut extension. With pretty good reason: At precisely the same time that Republicans are raising a hue-and-cry about federal deficits, they’re proposing a measure that would massively worsen our fiscal challenges.
Extending President Donald Trump’s individual tax cuts in full would add around $3 trillion to federal deficits over a decade, according to various estimates. As President Biden and others have pointed out, this is of a piece with other GOP-endorsed proposals that would widen deficits, such as repealing funding for the Internal Revenue Service and undoing Democrats’ prescription-drug pricing overhaul.
Moreover, extending the Trump tax cuts sounds pretty plutocratic: By far, the biggest benefits would go to higher-income households, according to estimates from the Tax Policy Center.
There is also little evidence that the 2017 tax law significantly boosted growth, at least based on the investment-driven theories touted by its supporters. It definitely didn’t generate enough economic growth to “pay for itself,” as those same supporters promised.
What’s more, in the regular polling that occurred for years after the law’s passage, it was almost consistently underwater in favorability.
All in all, probably not such a wise thing for Republicans to launch their economic agenda this way. Right?
And yet: If I had to guess, I’d bet that all or nearly all of the Trump tax cuts will indeed get extended before they lapse — even if Biden is still president when the deadline comes, and even if Democrats somehow achieve unified control over both legislative chambers again.
In designing their 2017 tax overhaul, Republicans did something clever: They made the corporate-side tax changes (mostly) permanent, and the individual-side ones temporary. This made the upfront cost of the bill look a lot cheaper, with the “expectation that no Congress would stand in the way of extending them later on,” says Tax Policy Center’s Steven M. Rosenthal.
Why was it reasonable to assume that future Congresses won’t let the tax cuts sunset, as planned, given how unpopular the original law was? Because the tax cuts did, in fact, benefit most Americans, including the middle class.
While the overall value of bill was heavily weighted toward the wealthy, most households did indeed enjoy at least a little cut to their taxes. Only a tiny sliver of households (about 6 percent) saw their tax liabilities rise as a result of the individual-tax-side changes in the law.
Contrary to popular perception, even in high-tax blue states, no more than 1 in 10 residents saw their taxes rise as a result of the GOP law. (For most people, any increase in their taxes because of the new cap on state and local tax deductions was more than offset by tax reductions elsewhere in the law.)
So, if these individual-side tax provisions lapse, a whole lot of Americans’ tax bills will rise — and whoever stands in the way of extending those provisions will inevitably get blamed for “raising taxes.” President Barack Obama learned this the hard way when he was in the White House and negotiating with Republicans over extensions to the Bush-era tax cuts. After all, once voters have received a benefit, it becomes politically dangerous to ever take that benefit away, even if initially the program seemed unpopular. (Just ask Republicans about Obamacare!)
The White House has so far been noncommittal about its approach to the soon-to-expire Trump tax provisions. But Biden might have already boxed himself into keeping most of them in place.
That’s because he has repeatedly pledged — including in the recent State of the Union — that “nobody earning less than $400,000 a year will pay an additional penny in taxes.” If this “no new taxes” promise is supposed to mean no projected increases due to expiring tax breaks, most of the 2017 law gets extended. Which is still expensive! Depending on exact details, extending all of the expiring provisions other than the top tax rate could cost $2.1 trillion over a decade, according to the Committee for a Responsible Federal Budget.
Even Biden’s proposed billionaire tax wouldn’t raise enough to offset that price tag.
Once upon a time, when both parties pretended to care about fiscal responsibility, Republicans generally favored addressing budget challenges through spending cuts, and Democrats through tax increases. Today, everyone’s on record as opposing just about anything that might make a significant dent in the deficit.
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