Tax Cuts Need Offsets, Not Baseline Games

In 2025, large parts of the 2017 Tax Cuts & Jobs Act (TCJA) are scheduled to expire. Extending the expiring individual and estate tax provisions alone would increase primary deficits by $3.9 trillion through 2035. Also reviving, extending, or avoiding a variety of business tax changes could increase that deficit impact to $4.8 trillion. Although the fiscal impact might be smaller after accounting for economic growth, estimates from modelers on the right and left suggest that feedback is likely to be between 1 and 14 percent.

When lawmakers enacted the TCJA, they intentionally set large parts of its cuts to expire or change over time in order to keep the original score below $1.5 trillion over a decade and ensure the legislation did not add to long-term deficits to comply with budget reconciliation rules. A permanent version of TCJA would have added significantly more to the deficit, particularly over the long run.  

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:

There will undoubtedly be efforts to pretend that extending the tax cuts is free – obviously this is not the case. Extending policies that are scheduled to expire – and were scored as expiring – would clearly add to the national debt.

Congress chose to let a large portion of the tax cuts expire when they enacted them as a way to limit the price tag at the time. Now, if lawmakers choose to extend some or all of the tax cuts, the rest of that bill will come due.

One gimmicky temptation will be to pull a bait-and-switch with budget baselines and pretend that tax cuts should be scored against a “current policy baseline” – a baseline that assumes the policies were already in place on a permanent basis – to hide any new cost. This would allow politicians to attempt to hide the full debt impact of tax cuts.

If every policy could be enacted temporarily and then assumed permanent, it would create tremendous hidden costs.

We can’t print our way, grow our way, or wish our way out of our fiscal problems.  

Instead of handwaving trillions of dollars of borrowing, policymakers should use the coming expirations as an opportunity to enact thoughtful tax and fiscal reforms. They should consider carefully which parts of the TCJA are working, which parts aren’t, and if they want to extend some parts, how to responsibly extend them without increasing the debt beyond current law.

In fact, policymakers should be pursuing deficit reduction next year – we need about $9 trillion of ten-year savings just to keep debt below 100 percent of GDP.  

Experts on the left, right, and center agree that the coming expirations should be used as an opportunity for fiscally responsible tax reform relative to a current law baseline. Baseline games and budget tricks can defer the hard choices, but future generations will pay the cost.

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For more information, please contact Matt Klucher, Assistant Director for Media Relations, at klucher@crfb.org.