It is clear that the final tax bill in Congress falls well short of being fiscally responsible or reforming the tax code, as supporters initially promised.
Although proponents said early on that tax reform would be revenue neutral and not add to the national debt, the final bill increases the debt substantially. Including the gimmicks meant to hide the true cost of the legislation and the added interest payments because of higher debt, the cost could be $2.5 trillion over ten years, which comes out to about $20,000 for each U.S. household. It would cause the debt to reach the size of the U.S. economy by 2027.
The bill also comes up short in delivering the comprehensive tax reform that was promised. Supporters claimed that we would see fundamental reform on par with the 1986 tax reform that eliminated many of the tax loopholes of the time. However, the final bill addresses very few tax breaks. It does relatively little to make the tax system simpler or fairer.
Our partners at the Committee for a Responsible Federal Budget echoed this sentiment in a statement.
This is the wrong legislation at the wrong time. This country desperately needed tax reform – we needed to get rid of antiquated and distorting tax breaks in order to finance a more efficient and pro-growth tax code. Instead, Congress is passing what could ultimately be a $2 trillion tax cut with far too few reforms – the bill might actually increase the number of tax breaks.
Before the country enacted tax cuts in 2001, debt was at modest levels and we were forecasting nearly $6 trillion in budget surpluses over the following decade. Today, debt is at post-WWII record levels, and we’re on course to add $10 trillion to the debt over the next decade even before these tax cuts. Unquestionably, this legislation would make a bad fiscal situation worse. And it opens the door to further debt-financed legislation this year and in the future.
In combination with other year-end legislation, this tax bill could cause the return of trillion-dollar deficits as soon as next fiscal year; and it could lead debt to exceed the size of the economy within a decade. Meanwhile, it will leave us with little fiscal space to address future emergencies and priorities.
When Congress began its work on tax reform, they called for a plan that was fully paid for. We were very supportive of that approach. Unfortunately, this final legislation represents a lost opportunity for once-in-a-generation reform that could have grown our economy, modernized our tax code, and actually improved America’s dismal fiscal decline. Furthermore, the passing of a large deficit-financed tax plan will make it harder – both fiscally and politically – to turn our attention to taking the necessary measures to address the nation’s unsustainable fiscal path.
With massive debt, exploding deficits, and entitlement programs racing toward insolvency, our current path is unsustainable. Policymakers need to act soon to begin righting the ship, and sadly this tax bill steers us further in the wrong direction.
We need to make this right - not just for our government’s bottom line; not just for our economy’s growth potential; but for future generations of Americans to whom the cost will be passed.
Updated 12/20 to include CRFB statement.
National Debt and You