More Deficit-Financed Tax Cuts Would Be Irresponsible

Blog Post
Monday, December 03, 2018

A last-minute Republican plan to extend certain tax breaks and create some new ones appears to face dim prospects this month. Time is running short for the lame-duck Congress, and a scheduled House vote was postponed on Friday.

Senate passage of the proposed tax legislation seems unlikely even if the House were to approve it.

That’s a good thing because supporters of the plan, which was unveiled last week by House Ways and Means Chairman Kevin Brady (R-Tex.), want to finance it -- as last year’s tax legislation was financed -- by simply increasing the federal deficit. That would be irresponsible.

In addition, the timing of this legislation leaves lawmakers with little if any time to carefully consider its provisions, which also include some IRS restructuring, changes to retirement accounts, and what are called “technical” corrections in last year’s tax law. Brady’s initial plan was nearly 300 pages long, and there were subsequent additions last week.

As they consider both tax and spending legislation, elected officials now and after the new Congress opens should keep in mind that the federal debt -- now $21.8 trillion -- is already quite high by historical standards. It is also rising rapidly, with Washington already projected to start running trillion-dollar annual deficits next year.

The tax cuts approved a year ago will add $1.9 trillion to federal deficits over a decade, according to Congressional Budget Office projections. Contrary to the claims of some supporters of those cuts, they will not “pay for themselves” even in the long term.

In the short term, it is clear that the cuts have already worsened the gap between federal spending and revenue. This is particularly disturbing during a strong economy, when the government should be closing that gap rather than widening it.

So this is hardly the time for lawmakers to rush through more deficit-financed tax cuts that the Joint Tax Committee estimates would reduce government revenue by more than $54 billion over 10 years.

In releasing his plan, Brady called it “a broad, bipartisan package.” But in fact Democrats are complaining that it is fiscally irresponsible and that they were not consulted before the plan was made public. They are expected to block the plan if it reaches the Senate.

There may be some positive elements in the legislation but if so lawmakers should figure out a responsible way to pay for them.  

But tax extenders -- short-term tax breaks that are often renewed -- are frequently used by lawmakers because they obscure the full, long-term cost of these provisions that generally favor some taxpayers over others.

In addition, tax breaks generally receive less public attention than outright government spending, although the impact on the federal debt is the same.

So tax extenders deserve a skeptical eye. Brady’s plan includes an odd assortment of them that would favor, among others, the biodiesel industry, regional railroads and some racehorse owners. Some beneficiaries would receive several years of tax breaks while most would receive only one-year renewals.

That’s all a disappointing reminder that last year’s tax bill, which was sold to the public as “reform” and “simplification,” hardly put an end to the practice of treating certain individuals, companies and economic activities differently.

While it is easy for Democrats to attack the GOP tax bill as fiscally irresponsible, it contains a number of expiring tax breaks that they would not mind seeing happen. So when they challenge Republicans now on increasing the deficit, they should be thinking ahead about how they would pay for these policies once they take charge in the House.

Trying to rush through a large, complex tax package in the final days of a lame-duck Congress is hardly a responsible legislative approach, particularly when control of the House is about to  change hands.

No matter when Congress passes new tax legislation, however, it should not rely on further increases in the deficit. Washington instead should be focused on deficit reduction.