Tax Bill Adds $1 Trillion to Deficit (Without Cutting Taxes for Most)
The stock market surged today on news that Senator John McCain would vote for the tax package. As it stands, however, the bill does not come close to passing budget rules.
Automatic tax hike triggers is one option if the bill does not bring in the anticipated revenue. And here's an advance hint: It won't. However, tax triggers may very well happen in the middle of the next economic downturn. And Republicans are loathe to pass tax hikes under any circumstances.
Senate Republicans’ $1.5 trillion tax cut would not “pay for itself” according to a report released on Thursday by the nonpartisan Joint Committee on Taxation. The report is a significant setback for Republicans, who have asserted that the tax cuts would grow the economy enough to cover the cost of the plan.
Plan Will Not Pay For Itself
Senate Bill Estimates
House Bill Estimates
It's truly a joke (and a bad one at that) for Republicans to announce the bill had passed when it hasn't.
The Hill reports the Tweet was deleted.
GOP Scrambles for Deficit Offset
The New York Times reports G.O.P. Seeks More Offsets After Analysis Says Tax Bill Adds $1 Trillion to Deficit.
• Republican Senators are considering raising some taxes down the road to help offset the deficit cost of their tax bill after the Senate parliamentarian rejected the idea of a trigger that would have automatically increased taxes if revenues failed to cover the cost of the cuts.
• The Joint Committee on Taxation said that economic growth from the tax cut will only offset $407 billion of the $1.5 trillion cost over the next decade. The analysis complicates the Republican argument that the tax bill will essentially pay for itself.
• Senators debated whether to send the bill back to Senate Finance Committee over concerns about the deficit impact, a move that would have halted the bill and possibly killed it. Republican senators ultimately all voted to proceed, setting the stage for a full vote at some point.
• Though Republicans sound optimistic, party leaders still do not have firm commitments from enough senators to ensure the bill will pass.
This bill does not reflect tax reform. It does not even lower taxes for most people.
And to address the budget concerns, Republicans are actually debating reinstating the alternative minimum tax, or A.M.T., on C-corporations and some high net worth individuals.
Senator Sue Collins may be the deciding vote.
“I want to see what the trigger is looking like. It’s gone through several iterations and it’s still under negotiation,” said Collins.
"The Senate parliamentarian said the so-called trigger mechanism is not allowed in the bill."
And why should it be? Proposals to do something later amount to nothing. Sequester history proves just that.
The New York Times offers this reminder: "If the Senate passes its tax bill, it will need to reconcile the differences with the House version before a final bill can be sent to Mr. Trump."
Required Growth Will Not Happen
Bear in mind, not even 4% sustained growth (a 0.5% likelihood in my estimation) will allow for the bill pay for itself.
McConnell says an extra 0.4% will allow the bill to "pay for itself".
Here is more believable analysis:
Kent Smetters, a former economic adviser in President George W. Bush’s administration, who is now the faculty director of the Penn Wharton Budget Model at the University of Pennsylvania, calculates that the actual growth needed to offset the cut would be 0.57 percent a year, or 5.7 percent over a decade, under a conventional method of scoring tax plans (the so-called current policy baseline).
He explained in an email: “The 0.4 percent value was calculated using the current tax system, which has a larger tax base than the new tax system after the cut. Instead, to figure out how much growth is needed for the tax cut to pay for itself, you need to start with the new tax base and ask how much must it grow to avoid any additional deficit.”
Not only is the tax trigger against Senate rules, Republicans are lining up against a trigger if it is included.
“I think the trigger idea is idiotic,” said Representative Trent Franks, Republican of Arizona.
Middle Class Tax Hike
By 2027, only those making more than $100,000 a year gain from reform.
Hopefully this bill dies one way or another.
It may come down to Collins, Corker, or the Senate Parliamentarian to derail this mess.
As I said in Tax Reform or Tax Perversion? ....
By no perverted stretch of the imagination can one call this monstrosity "tax reform." I propose starting over.
Mike "Mish" Shedlock