The House of Representatives and Senate have both passed legislation to cut taxes. Both versions could increase the national debt by some $2 trillion over ten years. That is on top of the $10 trillion that the debt is already forecast to grow by over the next decade.
A conference committee is in the process of ironing out the differences between the two bills. Once that is done, the House and Senate will vote on the reconciled bill. The final vote is expected by the end of the year.
Enacting the tax cuts could cause the national debt held by the public to reach the size of the economy by 2027 when the true cost that includes gimmicks is calculated, several years earlier than currently forecast.
Even including the effects of faster economic growth due to the tax cuts, the debt would still increase by over $1 trillion over a decade. This would worsen an already unsustainable debt outlook.
That is why former Senators Alan Simpson (R-WY), a co-founder of Fix the Debt, and Bob Kerrey (D-NE), co-chair of the Concord Coalition, warned that the legislation will not boost growth as advertised in a new op-ed.
If the aim of tax reform is to set our economy on a higher growth path, then deficit-financed tax cuts are counterproductive. The debt overhang would undermine, or even eliminate, the long-term growth that might otherwise result from tax reform.
The pair called on Congress to improve the legislation so that it does not increase the debt.
A better course of action now would be to scale back the size of the tax cuts or eliminate more tax expenditures so that the bill can be fully paid for without gimmicks. If that commitment were made, it might then be possible to attract some bipartisan support, which is always the best result when enacting such consequential legislation.
This may take a little longer but it would be better economic policy, better fiscal policy, and better tax policy.
A few senators did stand up for a more fiscally responsible approach to tax reform that would grow the economy in a lasting way like Simpson and Kerrey urged. Join us in thanking of them by signing our open letter.
National Debt and You