This week on Facing the Future we previewed a coming tax mess that Congress created in 2017 when it passed the Tax Cut and Jobs Act (TCJA). To limit the official estimated revenue loss of the bill, Congress scheduled many of its provisions to expire at the end of 2025. That might have seemed like a good idea at the time, but the expirations are now upon us.
Our guest was Marc Goldwein, Senior Vice President at the Committee for a Responsible Federal Budget. He discussed with us how much it would cost to extend the expiring provisions, what some viable options might be to offset the revenue loss, what Congress should be doing to prepare for this fiscal cliff and, of course, the political complications.
“When Congress passed the 2017 tax cuts,” Goldwein explained, “there were two weird budget rules that they had to abide by. One was they had to keep the total 10-year cost as scored at the time below $1.5 trillion dollars, and the other was they couldn’t add to the long-term deficit – starting in years 11 and beyond – at all.”
He noted, “They could have, of course, just passed revenue-neutral tax reform, or even revenue-neutral tax reform that had some upfront transition costs. Instead, they passed very expensive tax reform and set a number of items to expire, starting at the end of 2025, that both reduced that 10-year cost and got rid of most of the long term cost. On top of that, they took some of their pay-fors to the corporate tax cuts and made it so that they grew larger towards the end of that budget window. The combination of these things fulfilled the budget rules, but it didn’t make for a cleaner stable tax code. And now here we are, seven years later, looking down the barrel at these cuts.”
Goldwein estimated that “if we were to extend just the provisions that expire at the end of 2025 – and by the way that includes some tax cuts like lower rates and some tax increases like the $10,000 cap on the state and local tax deduction – it would cost about $3.4 trillion dollars over the subsequent decade.”
“What they ought to do,” he suggested, “understanding that our debt is headed to record levels, that our deficits are massive, is to look through the TCJA provision by provision and decide what to keep, what to ditch, what to expand, what to reform, and then bring in new elements to make sure that the whole thing is fully paid for and is at least deficit neutral, honestly, preferably deficit reducing.”
Unfortunately, Goldwein said he worries that “they’re going to do the exact opposite. They’re going to say, okay, as a starting point, we’re going to extend everything, but that’s not enough, because we don’t like some of the pay for and we want to expand some of the tax cuts, and they’re going to turn a $3.4 trillion dollar bill into a $7 trillion dollar bill.”
“I’d much rather let the whole thing expire,” he said, “than extend the whole thing because extending the whole thing is three and a half trillion dollars when our debt is already headed to record levels, and we’re already burning two trillion. That said, letting it all expire is sort of throwing the baby out with the bath water. The TCJA did do a lot of good things especially in the area of simplification, where barely anybody is itemizing anymore. That’s a good thing. Most people take the standard deduction. Barely anybody’s paying the alternative minimum tax any anymore. And that’s a good thing because you shouldn’t have to calculate your taxes twice. The lower rates can help spur work and investment. The family benefit simplification helps people with children that are of lower lower income. So we ought not let it expire, we ought to actually fix it. But if push comes to shove, we should let it all expire, and then try again with some good policy later.”
There are, of course, other deadlines Congress will need to deal with in 2025. According to Goldwein, “Right now there are three major deadlines in 2025, and they’re not tied together; the debt limit at the beginning or middle of the year, the end of the Fiscal Responsibility Act (spending caps) in October and the expiring TCJA provisions on December 31. They’re too far apart to mush them together, but with some extensions and short-term kicks of the can, one could see them all becoming this big blob at the end of 2025, or even at some point in 2026.”
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.
