Per GOP orthodoxy, it’s always time for a tax cut, no matter what’s going on in the U.S. economy. And so, even though jobs are plentiful, growth has ticked up, inflation is coming under control and the fiscal 2023 budget deficit is projected to hit 6% of gross domestic product — the Ways and Means Committee voted on June 13 to slash levies.
The three-bill package contained higher standard deductions for individuals; expanded depreciation and other breaks for business; and, to offset those measures, a rollback of President Biden’s clean energy tax credits. The net increase to the debt, over 10 years, would be $19 billion, not including interest. We suppose that’s close enough to revenue-neutral for government work. However, this relatively benign estimate hinges on the unrealistic assumption that a future Congress will actually let the tax cuts expire by the end of 2025, as the bills provide. In the more likely event that these breaks go the way of so much other “temporary” legislation — that is, become permanent — the bills’ 10-year cost would balloon to $950 billion, according to the Committee for a Responsible Federal Budget.
The good news — if that’s the right phrase — is that internecine GOP disputes might prevent the measure from passing the full House. Republicans from New York, California and other high-tax states are demanding inclusion of an expanded deduction for state and local taxes paid, or SALT. The 2017 Republican tax bill capped this break at $10,000 a year through 2025 to broaden the tax base upon which lower marginal rates would be imposed. The interest of GOP members in reviving SALT is a remarkable turnabout from the last Congress, in which it was Democrats from those same states who were insisting — without success, as it turned out — on restoring the deduction. This history shows that the SALT deduction is not a purely partisan issue but a matter of class and region: Wealthy blue-state suburbanites, Republicans and Democrats, have a common interest in passing some of their high property and nonfederal income taxes on to the Treasury.
In this case, bipartisanship does not connote good policy. To the contrary: Reinstating this perk could cost up to $80 billion per year, with the benefits overwhelmingly flowing to upper-income households. Ways and Means Chairman Jason T. Smith is right to resist it — even though he deserves some blame for starting the tax-code tinkering in the first place.
More good news — again, if that’s the right phrase — is this contentious exercise is probably also a hollow one: Even if the GOP manages to put aside its internal differences and pass a tax bill through the House, it wouldn’t stand much chance in the Democratic Senate. The Republicans probably won’t accomplish much, except to send a message of tax-cutting zeal to the party base. Unfortunately, that will come at the cost of demonstrating to an anxious world what Fitch Ratings had in mind when it reduced the U.S. credit rating last week, from AAA to AA+: “a steady deterioration in standards of governance.”