Negotiators from the House of Representatives and Senate are about finished ironing out the differences in the tax bills they recently passed and plan to vote on final tax legislation the week of December 18. The conference committee reconciling the two bills was another missed opportunity to improve the legislation so that it really transforms the tax code without adding to the national debt. Instead, it looks like more gimmicks will be added that will increase the true cost of the legislation.
The versions passed by the House and Senate would cost about $2 trillion over ten years when including gimmicks that hide how much the legislation will actually cost, such as tax cuts that are technically due to expire in a few years but realistically will be extended. The gimmicks are being used because the legislation cannot officially add more than $1.5 trillion to deficits over a decade.
As lawmakers seek to placate both the House and Senate, they could possibly add even more gimmicks to obscure the cost of giving each side what they want. The result will be legislation that adds even more to the debt.
Instead of adding more gimmicks, the conference committee could have eliminated more tax breaks, which would not only reduce the cost but also truly reform the tax system to make it simpler and fairer. As we said in a recent piece in Medium:
These tax preferences mirror spending so much that they are sometimes referred to as tax expenditures. They now account for nearly $1.6 trillion in lost revenue annually and that amount will continue to grow every year. If included in the federal budget, they would represent more than a quarter of government spending.
Cleaning up these loopholes would make the tax code simpler, fairer, and more pro-growth. Most tax preferences are skewed toward the wealthy and steer individuals and businesses toward making decisions that lower their tax burden rather than increasing national income.
As our new infographic illustrates, the current approach falls short. Congress is running out of time to do better.
National Debt and You