As Republicans on Capitol Hill lay the groundwork for extending the 2017 tax cuts, rifts are already emerging over one of the biggest issues: cost.
The nonpartisan Congressional Budget Office estimates that extending the tax provisions would increase the budget deficit by $5 trillion. But many lawmakers are quick to ignore or explain away this number, arguing that tax cuts will ultimately help the economy and, in turn, government revenue.
The debate over costs comes as lawmakers consider the possibility of extending and building on the 2017 Tax Cuts and Jobs Act, which raised the standard deduction, lowered income tax brackets and created deductions. This is one of the major issues that must be addressed first. For small business income. All of these provisions are scheduled to expire at the end of 2025, but other changes in the bill, such as the 21% corporate tax rate, would remain in place.
House Majority Leader Steve Scalise (R-Louisiana) said CBO does not always use dynamic scoring, which considers both primary and secondary economic impacts. criticized.
“We’re looking at many of these tax credits, mandates, rules and regulations that put a tremendous burden on families financially, and we’re going to look at cutting them to get our economy back on track,” he said. . A recent interview with CNBC at the Capitol.
Some tax leaders, including the incoming Senate Finance Committee Chairman, Sen. Mike Crapo (R-Idaho), say the 2017 tax provisions, which are set to expire at the end of 2025, have already expired. It downplays the assumed $5 trillion estimate. .
But Crapo said the tax measure is a continuation of current policy and that blocking tax increases should not be seen as an increase in the budget deficit, so there is no need to pay for it.
“If we’re just extending the current law, we’re not raising taxes, we’re not cutting taxes. To say that’s a $4 trillion deficit is ridiculous,” he said on Fox Business.
However, a group of deficit hawks are concerned about the deficit and believe that any tax measures need to be fully offset.
It’s unclear how many lawmakers will actively oppose the bill if they feel it’s too expensive, but narrow margins in the House and Senate mean a small number of lawmakers could effectively keep the process afloat. .
Assuming no Democrats support the Republican bill, Republicans stand to lose only four senators. The margins in the House are unclear because some very close races have not yet been called. Complicating the House vote count is that President-elect Donald Trump has selected two House Republicans to join his administration, Rep. Elise Stefanik of New York and Rep. Mike Walz of Florida. is.
A third Republican, former Rep. Matt Gaetz of Florida, resigned from the House on Nov. 13, hours after President Trump announced he would nominate Gaetz for attorney general. The Senate’s opposition to Gates quickly removed him from AG consideration, but his House seat will remain vacant until filled by the winner of a special election.
Rep. Chip Roy (R-Texas), another proponent of dynamic scoring, said it’s important to ensure deficits are addressed through tax measures.
“We need to make sure that not only is the deficit neutral, but more importantly, that the deficit is actually being reduced,” he told reporters on the House floor last week. “So I would argue that we need to take those into account.”
Others, such as Rep. Greg Murphy, RN.C., say Congress needs to be “intellectually honest” about which tax cuts will boost growth and whether the government is doing enough to tackle the debt problem. He said there is.
“We want to offset everything,” he told CNBC from the Capitol. “It’s destroying our country. It’s the biggest silent gun we have. And we have to be honest about this. The government has to take in revenue to feed itself. It must be done.”
But Murphy declined to say whether he would support legislation that would widen the budget deficit.
Rep. Jody Arrington (R-Texas), who chairs the House Budget Committee, gives the tax bill the best score in the Republican caucus to determine how much the debt will ultimately increase. He said there was debate about the method.
“There are a lot of opinions on both sides,” he told CNBC from the Capitol. “Some people will lean more toward deficit concerns. Some people will say, ‘If we don’t grow, we’ll never get out of this hole.'”
Negotiations on the tax bill are still in the early stages, and there are also discussions about what revenue sources to include in the bill.
Many Republicans support reducing tax credits for electric vehicles that were part of outgoing President Joe Biden’s Inflation Control Act, a sweeping climate and economic package signed into law in 2022.
However, it is unclear which specific clean energy proposals will be withdrawn. Republican-leaning congressional districts are benefiting from the program, with 18 members in an August letter asking House Speaker Mike Johnson (R-Louisiana) to reduce the amount of IRA taxes that already benefit voters. They requested that some of the deductions be maintained. Johnson told CNBC that people should use “a scalpel, not a sledgehammer” when choosing what to keep and what to cut in a package.
Republicans are also considering nontraditional quid pro quos, such as tariffs, which Trump hopes to introduce during his term as both a revenue-raising measure and a geopolitical bargaining tool. However, it is difficult to measure the impact of tariffs because rising prices for specific goods in specific industries or countries are likely to have unpredictable ripple effects, such as changes in consumer habits or the imposition of retaliatory tariffs. It can be difficult.
Lawmakers are also debating whether to add some of Trump’s campaign promises to the bill, including eliminating taxes on tip income, lifting caps on state and local tax deductions and exempting Social Security benefits from taxes.
Adding these measures increases the cost of the bill by reducing overall government revenue.
