The debate about raising the federal government’s debt ceiling has – and will continue to be – centered on the expenditure side of the fiscal ledger. But a report on Tuesday from the Congressional Budget Office sheds considerable light on impact of the Republican plans for federal revenues – and it’s not a pretty picture.
When the Tax Cuts and Jobs Act – former President Trump’s signature legislation – was passed in 2017, many of its provisions were slated to expire in order to conform to arcane Congressional budgetary rules. However, House Speaker Kevin McCarthy is on record as saying that he wants to extend those tax cuts. The CBO’s new report quantifies the revenues that would be lost if those tax cuts are made permanent. The revenue loss begins next year and quickly ramps up to as much as $500 billion a year. All told, over the coming decade, extending the expiring provisions of the TCJA would cost the Treasury $3.5 trillion.
To put that in perspective, on present course and speed, the nation is expected to incur just over $20 trillion of deficits over the coming decade. Extending the TCJA provisions would add $3.5 trillion to this total.
Before we rush to extend the TCJA’s expiring provisions, let’s recall who benefited from those tax cuts. For starters, only 16% of the total cost of the package went to Americans earning less than $75,000 annually. The balance went to higher-income Americans and to businesses.
Another, even more disturbing way to look at it: those at the top of the income scale saw far larger proportional increases in their post-tax incomes than those at the bottom. A taxpayer in the top 1% (with an annual income of at least $700,000) got a 3.4% increase in their after-tax income. A filer in the next 4% (between $300,000 and $700,000 in income) got a 4.7% jump. By contrast, the bottom 80% of Americans got, on average, less than a 2% boost. That, in the parlance of the tax community, made the tax cuts regressive.
Putting it all together, the Republican package would have only a modest impact on the future trajectory of budget deficits. At present, the deficit is running at about $1.5 trillion. Left untouched by any policy changes, the deficit could rise to nearly $3.5 trillion by 2033. If the Republicans’ debt ceiling plan and TCJA extensions were enacted, the deficit a decade from now would be only modestly smaller, at $3 trillion. By comparison, President Biden’s budget plan – which includes more revenue from taxes on business and the wealthy – would hold the size of the deficit to $2.4 trillion in 2033, even though Biden proposes expanding spending on important social initiatives like free community college and national paid sick and family leave.