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Behind the Scene Look at Finance Committee: Republicans Work on Fitting Square Peg into Round Hole

By Adam Kazda | November 15, 2017

Republicans in Congress continue to work on their tax reform package. Their goal is to broadly do three things:

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  • Cut taxes for individuals and corporations by $1.5 trillion over the next 10 years.

  • Make as much of these tax reforms permanent as possible.

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  • Comply with Senate reconciliation rules – including that the bill cannot increase the long-term debt (no deficits beyond the 10 year window).

It doesn’t take a mathematician to realize the provisions that will cut taxes by $1.5 trillion in the first 10 years will also continue to increase the deficit in the next 10.  If that is the case, then reconciliation is no longer a possibility, and Republicans would need to get support from at least 8 Democrats to pass tax reform.

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Late last night, the Republicans introduced an alternative version that would fix the long-term debt issue.  It lets the tax cuts for individuals, including the doubling of the standard deduction, expire in 2025.  It also includes a controversial repeal of the Obamacare individual mandate – which will provide revenues to offset an expansion of the child tax credit from $1000 to $2000 while continuing to provide offsetting revenue to permanent corporate tax cuts.

Expect to hear Republicans say that letting the individual tax breaks expire is necessary to comply with complicated procedural rules – and that Congress will surely extend them in 2025.  Under current law, the annual deficit is projected to be $1.2 trillion in 2025 and the total national debt will already be nearing $30 trillion.  An assumption that these tax breaks will definitely be extended is bold.

The move to let the individual tax breaks expire in 2025 shows one of two things: 1) it masks the true impact the desired plan will have on long-term debt; and 2) it serves as a clear example of how this bill shifts resources from future Millennial families to current households.  Millennials in their peak earning years won’t get the benefit of lower taxes – but they will have to pay for these deficit financed tax cuts with interest.

Congressional Republicans are banking on tax reform to help them at the ballot box next year.  Whether this will help them is unclear, but their place in history is starting to sharpen.

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