The Trump administration and congressional Republicans unveiled a “unified framework” for tax reform on Wednesday, kicking off what promises to be a heated debate on overhauling the U.S. tax code. And a preliminary estimate suggests that the tax plan could blow a huge hole in the already unsustainable national debt.
The new tax framework leaves many blanks to fill in, but the basic features include:
- Narrowing the current 7 tax brackets down to 3 at 12%, 25%, and 35%.
- Nearly doubling the standard deduction to $12,000 for single filers and $24,000 for married couples filing jointly.
- Repealing most itemized deductions, except for the mortgage interest and charitable giving deductions.
- Increasing the Child Tax Credit and creating a new non-child dependent credit.
- Eliminating the estate tax.
- Abolishing the Alternative Minimum Tax (AMT) for individuals and corporations.
- Reducing the corporate tax rate to 20%.
Although many details remain to be determined, a very rough estimate from our partners at the Committee for a Responsible Federal Budget (CRFB) suggests that the plan would result in around $5.8 trillion in tax cuts with some $3.6 trillion in offsets, which would add $2.2 trillion to deficits over the next ten years. This would cause the national debt to exceed the size of the U.S. economy in just a decade.
The country is definitely in need of comprehensive tax reform that makes taxes simpler, fairer, and more competitive. But we cannot afford a massive tax cut that increases the national debt, which is already at a record-high level. We give 5 reasons why tax reform should not increase the debt.
While responsible tax reform can help grow the economy over a long period of time, increasing the debt will slow economic growth over the long run. As CRFB summed it up in a statement:
Tax cuts shouldn’t be handed out like Halloween candy. To grow the economy, they must be paid for, and the details of this plan appear to come up $2 to 2.5 trillion short.
Deficit-financed tax cuts are a recipe for a short-term economic sugar high followed by sluggish long-term growth.
Washington’s sweet tooth for deficit-financing new tax cuts and spending has already set us up for one heck of a tommy ache down the road as the debt is already forecast to rise to dangerous levels. Now is the time to start getting the debt under control, not piling on more.
A little bit of sugar in the form of lower rates may help the medicine of tax reform go down. But loading up on candy will only worsen our fiscal health.
You can help spread the message by writing your representatives in Congress to tell them to support responsible tax reform that does not bust the federal budget.
National Debt and You