It probably isn’t a good sign when a political project is initially mistaken for a joke.
But President Trump and House Ways and Means Chairman Kevin Brady last week found themselves having to insist that they were serious about wanting a new round of tax cuts on top of the deficit-financed tax cuts that were approved only three months ago.
Those tax cuts are now starting to widen the gap between government revenue and spending. This requires the Treasury to borrow more money, putting even more upward pressure on the rapidly growing debt, which last week reached the $21 trillion mark.
Trump has raised the possibility of a “round two” with more tax cuts and other tax-code changes at least three times since Feb. 1. After the first time — at a GOP policy conference where Trump said Republicans would get taxes “even lower” — a White House official later said the president had been joking.
At a White House event last Monday, however, Trump asked Brady about plans for “an additional tax cut” and then declared there would in fact be a “phase two.” The audience laughed but Trump added: “We’re actually very serious about that, Kevin.”
On Wednesday Brady, a Texas Republican, confirmed that another tax bill was in the works and would be unveiled later this year.
Later that day Trump told business executives in St. Louis that he and Brady were working on a new tax plan that would be “something very special.” Since then other Republicans in Congress and elsewhere have chimed in to endorse the idea of additional tax cuts.
What lawmakers and Trump should be focusing on right now is how to pay for the tax cuts that they have already approved. Those tax cuts, signed into law in December, are projected by the congressional Joint Committee on Taxation to increase deficits by a total of $1.1 trillion over the next decade even after accounting for positive economic feedback.
That would be on top of the $10 trillion debt increase that had already been projected for the next 10 years.
In addition, Congress is now working on catch-all spending legislation that — in line with a bipartisan deal in February — would require even higher deficits to fund substantial increases in defense and domestic programs. This would likely ensure trillion-dollar annual deficits in the Fiscal 2019 and beyond.
Trump and other supporters of the December tax cuts claim that resulting economic growth would minimize additional federal borrowing. Economists across the political spectrum say that is an unrealistically optimistic scenario.
Given the enthusiasm with which Washington has embraced higher deficits in recent months, it seems safe to assume that it would simply pull out the credit card again for any new tax cuts or new subsidies in the tax code.
Fortunately, the prospects for a second round of large, deficit-financed tax cuts in the coming year appear slim.
Passage would likely require 60 votes in the Senate and thus some buy-in from Senate Democrats because the fast-track “reconciliation” process created in the current-year budget resolution has already been used for the December legislation. To use this same process now would require passage of a budget resolution for the coming fiscal year, but Congress is running out of time on that and has made no forward movement on drafting a 2019 budget resolution.
But the idea that Trump and some lawmakers could even contemplate a second big round of deficit-financed tax cuts is troubling.
That would boost federal deficits and debt even higher — and perhaps leave many voters with the mistaken impression that this flood of red ink is nothing to worry about.