Tax cuts are moving forward on Capitol Hill, but they represent a step backward for fiscal responsibility.
The U.S. House of Representatives passed the Tax Cuts and Jobs Act just before Thanksgiving on a largely party-line vote and the Senate plans to vote on its version of the bill soon. The Senate Finance Committee approved it on a party-line vote just as the House acted. While it is good that lawmakers are debating taxes, the current legislation would increase the debt significantly, which would thwart the stated goal of tax reform to grow the economy.
The official price tag for the bills being considered in Congress is about $1.5 trillion over ten years. In reality, some $2.2 trillion will likely be added to the national debt when additional interest and the gimmicks meant to mask the true cost are factored in. It’s important to note that this will be on top of the $10 trillion that is already forecast to be added to the debt over the next decade. The gross debt is already over $20 trillion.
The claim that tax cuts will pay for themselves goes against the evidence from previous tax cuts. And independent analyses of the current legislation indicate that it will still add to the debt even when factoring in the effects of additional economic growth. Higher debt will ultimately slow the economy.
Our partners at the Committee for a Responsible Federal Budget lamented the passage of the House bill in a statement:
The House approved debt-financed tax cuts based on predictions of magical economic growth that defy history and all credible analyses.
Tax reform should grow the economy and not add to the debt. Unfortunately, lawmakers are assuming faster economic growth will pay for that debt increase when there is no evidence it will cover more than a fraction of the tax bill’s costs.
The last time Congress added 10-figures worth of tax cuts to the debt in 2001, it blew a hole in the budget and helped erase our surpluses — despite claims that economic growth would cover the cost. The growth fairy did not appear then, and it would be unwise to assume she will this time around.
What is so stunning is that we are considering trying this again at a truly unprecedented moment in our fiscal history. When the tax cuts of 2001 were passed, debt was 31 percent of GDP, the nation was running budget surpluses, and we were on track to pay off our debt. Today, debt is 77 percent of GDP — higher than any time in history other than just after World War II — and trillion-dollar deficits are on track to return by 2022.
Already, we are projected to borrow another $10 trillion over the coming decade. The answer must not be to pile more debt on top of that.
This bill is a lost opportunity to truly reform the tax code in a way that would maximize economic growth by broadening the base and eliminating special interest tax breaks while lowering rates and modernizing our tax code.
Instead of trickling down economic growth, the House plan will unleash a tidal wave of debt that will ultimately slow wage growth and hurt the economy.
Former House Budget Committee chair and Office of Management and Budget director Leon Panetta warned that adding so much to the already unsustainable debt situation will do real harm to the country in a USA Today op-ed.
Panetta listed the lessons he learned from his previous experience in tackling deficits. They include putting everything on the table, getting presidential leadership, and enforcing budgets.
Fortunately, some members of Congress are speaking out against the debt impact of the tax cuts. If their colleagues listen to their demands for a better approach, we can achieve real tax reform that does not add to the national debt.
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