This week on Facing the Future, we looked at the congressional tax agenda, both in the next few weeks and into 2025 when a number of provisions of the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire at the end of the year.
Our guide through the tax thicket was Rohit Kumar, Co-Leader of Washington National Tax Services at PricewaterhouseCoopers and a former Deputy Chief of Staff to Senate Republican Leader Mitch McConnell. Concord Coalition policy director Tori Gorman and chief economist Steve Robinson joined the conversation. Later in the show, Tori, Steve, and I discussed the outlook for inflation, the uptick in consumer sentiment, and progress on creating a bipartisan fiscal commission.
While the battle over regular appropriations and supplemental spending has grabbed most of the attention in Washington, a bipartisan tax bill has been taking shape. As described by Kumar, the bill would restore business-friendly tax rules for Research and Development expense deductions, interest deduction limitations, and full “bonus” depreciation. It would also enhance the child tax credit.
Official scorekeepers at the Joint Committee on Taxation say that the bill would reduce revenues by about $78 billion over 10 years, most of which is offset by clamping down on the Employee Retention Credit, which was enacted during the pandemic to provide relief to businesses that retained workers during the COVID-19 layoffs.
Kumar observed that the bill has broad support because it has “some Republican stuff in the TCJA provisions and some Democratic stuff in the child tax credit provisions. Both of these are actually bipartisan, but they sort of lean right or lean left in their orientation. It has bipartisan long-term housing assistance, bipartisan disaster assistance and it’s paid for by ending a pandemic-era program that I don’t think anyone realized was going to be this expensive, or indeed was still kicking out money at the pace that it is.”
The bill was approved by the House Ways and Means Committee with a strong 40 to 3 vote and Kumar said “there’s actually reason to believe that this thing might be on the House floor as early as next week on the so-called Suspension Calendar, which is a mechanism for the House to pass something by skipping the House Rules Committee, and going straight to the floor.”
The official revenue loss of the bill is kept lower by assuming that its provisions expire in 2025, a common scoring practice. Kumar observed however, that, “the fact they’re paying for any of it is a little bit out of character for Congress. Typically with these extensions of expiring tax relief the provisions are not paid for at all, so paying for any of it Is actually a little bit of a break from the historic norm.”
Looking ahead to the scheduled expiration of many tax provisions already set to expire in 2025, Kumar said, “whether Congress is going to be able to find either spending reductions or tax increases to pay for things that are coming down the pipeline – whether that’s the continued expansion of entitlement spending, or the expiration of all of the individual, and pass through, and a fair number of corporate provisions at the end of 2025 – color me deeply skeptical.”
He continued, “I think we get serious about this when the public starts to care about it, like when voters start electing members of the House and Senate who campaign on and then are empowered to execute the transaction of, ‘we’re going to cut spending and we’re going to raise taxes, and we’re going to right the state of the fiscal ship.’ Until it becomes a ‘regular person’ voting issue there’s no reason for Congress to make the hard choices that this will inevitably entail, because I can’t think of two less popular things in the economic policy space than cutting spending and raising taxes. And it’s because of that that we have a $34 trillion national debt that is headed only further north.”
In our final segment Robinson and Gorman discussed some things they are paying particular attention to as we head into the new year. Robinson is keeping an eye on inflation and whether the Federal Reserve Board will achieve a “soft landing.”
“As we see the economy move forward into this year,” he said, ”we’re going to find out, did the Fed’s money printing machine really have an effect? And will that effect persist going forward? My sense is that until some of the excess bank deposits and reserves get soaked up either by the Fed lowering its balance sheet, or by other means, I think inflation is going to persist throughout the year.”
Gorman is watching consumer sentiment and its recent apparent improvement. “We still have some ground to recover to get back to pre-Covid levels,“ she noted, “but it looks like the beginning of a turnaround in consumer sentiment about the economy, and obviously it comes at a pretty useful time as we head into an election year in the fall. Everybody knows that opinions about the economy are very influential when voters go into the voting booth. So that’s what I’m going to be keeping an eye on over the next month or two.”Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
