As Republicans on Capitol Hill lay the groundwork to extend the 2017 tax cuts, they are already divided over one of the biggest issues: how to handle the costs.
According to the nonpartisan Congressional Budget Office, extending the tax rules is expected to increase the deficit by $5 trillion. However, many lawmakers were quick to dismiss or explain away the figure, arguing that tax cuts would ultimately help the economy and, in turn, government revenue.
The debate over costs is one of the first issues lawmakers need to address as they look to expand on and potentially build on the 2017 Tax Cuts and Jobs Act, which raised the standard deduction, lowered income tax brackets and created Deducts deductions for small business income. All of these provisions are set to expire at the end of 2025, but some other changes in the bill, including a 21% corporate tax rate, will continue.
House Majority Leader Steve Scalise, R-Louisiana, criticized the Congressional Budget Office, saying the agency does not always use dynamic scoring, which considers both major and minor economic impacts..
“You’re going to see a lot of tax credits, mandates, rules and regulations that are adding huge costs to families in the economy, and we’re going to look at cutting those costs to get the economy back on track,” he told CNBC recently at the Capitol. interview.
Some top tax leaders, including incoming Senate Finance Committee Chairman Mike Crapo, R-Idaho, Downplayed the $5 trillion estimate, which assumes the 2017 tax rules expire at the end of 2025.
But Crapo said the tax measure is a continuation of current policy and preventing tax increases should not be considered an increase in the deficit and therefore not required to be paid for.
“If we just extend the current laws and we don’t raise taxes or cut taxes, that’s a $4 trillion deficit, which is ridiculous,” he told Fox Business Channel.
However, some deficit hawks are concerned about ballooning deficits and believe any tax plan needs to be fully offset.
It’s unclear how many lawmakers would be willing to follow through if the package is deemed too costly, but slim majorities in the House and Senate mean even a handful of lawmakers could effectively block the process.
Assuming no Democrats support the Republican bill, Republicans can only lose four senators. The House margins are unclear because some very close races have yet to be announced. President-elect Donald Trump has complicated the counting of votes in the House by selecting two House Republicans to join his administration: Rep. Elise Stefanik of New York and Rep. Elise Stefanik of Florida. Councilman Mike Waltz.
A third Republican, former Florida Rep. Matt Gaetz, resigned from the House hours after Trump announced Gaetz’s nomination to be attorney general on Nov. 13. That quickly led to him withdrawing from AG consideration, but his House seat will remain vacant until filled by the winner of the special election.
Another proponent of dynamic scoring, Rep. Chip Roy, R-Texas, said it was crucial to ensure the deficit was addressed through a tax package.
“We need to make sure that it’s not just deficit neutral, but more importantly, that it actually reduces the deficit,” he told reporters during the House steps last week. “So I’m going to speak out and say these need to be taken into consideration.”
Other lawmakers, such as Republican Rep. Greg Murphy, said Congress needs to be “intellectually honest” about which tax cuts will boost economic growth and whether the government is doing enough to address the debt problem.
“I hope everything can be offset,” he told CNBC at the Capitol. “It’s killing our country. It’s the biggest silent cancer we have. We have to be honest about it. The government has to absorb the revenue to pay for itself.”
But Murphy was noncommittal about whether he would support legislation that would increase the deficit.
House Budget Committee Chairman Rep. Jody Arrington, R-Texas, said there is an ongoing debate within the Republican caucus on how best to score the tax bill to determine how much the debt will ultimately increase.
“There are a lot of opinions on both sides,” he told CNBC at the Capitol. “I suspect you’re going to hear people worry more about the deficit. You’re going to hear others saying, ‘If we don’t grow, we’re never going to get out of this.'”
Negotiations on the tax bill are still in the early stages, as are discussions about which revenue raisers should be included in the bill.
Many Republicans support eliminating tax credits for electric vehicles as part of outgoing President Joe Biden’s Inflation Cutting Act, a sweeping climate and economic package signed into law in 2022 plan.
But exactly which clean energy proposals will be eliminated is unclear. Republican-leaning congressional districts have benefited from the programs, and 18 lawmakers asked House Speaker Mike Johnson, R-Louisiana: In a letter from August Keep some tax credits in the IRA that already benefit their constituents. Johnson told CNBC he needed to use a “scalpel, not a sledgehammer” to choose what to keep and what to cut in the package.
Republicans are also considering more unconventional payment options, such as tariffs, which Trump hopes to use as a revenue booster and geopolitical negotiating tool during his presidency. Measuring the impact of tariffs can be difficult, however, because higher prices for certain goods in certain industries or countries can have unpredictable ripple effects, such as changing consumer habits or triggering retaliatory tariffs.
Lawmakers are also debating whether to include some of Trump’s campaign promises in the bill, including eliminating the tip income tax, lifting caps on state and local tax deductions and not taxing Social Security benefits.
Increasing any of these measures would reduce overall government revenue, thereby increasing the cost of legislation.
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