There was much to dislike in the package of large and regressive tax cuts advanced by President Trump in his first term, but I’ll give it this: By expanding the standard deduction, it simplified the process of figuring out what you owe, and by cutting the corporate rate, it made American businesses more competitive. But why stand on precedent? The latest effort, which I can think of only as tax deform, is a tremendously expensive effort to make the tax code less efficient, less fair and more complicated. Instead of taking this misguided approach, Congress should make permanent the best aspects of that 2017 law — including a larger standard deduction, increased child tax credit and limits on the deductions for mortgages and state and local taxes — and eschew unaffordable rate reductions and new complications to the tax code.
The biggest problem with the tax cuts in what Mr. Trump likes to call the “one big, beautiful bill,” which is moving to a vote in the House of Representatives, is that they are, well, big. Congress levies taxes not because it’s fun to do so but because they are needed to pay for the level of spending the nation has chosen to undertake. That spending is currently about $2 trillion per year higher than what taxes generate, and the new law would widen the gap with cuts in revenue that dwarf any of the proposed cuts in spending.
The House bill is estimated by Congress’s nonpartisan Joint Committee on Taxation to lower tax revenue by $3.8 trillion over 10 years, but even that eye-popping figure understates its likely cost. Officially, many of the cuts would be temporary, lasting just four years. But there is no doubt that four years from now, the bill’s supporters would be back pushing to extend the cuts and claiming there would be no cost to doing so because they would already be in place. Between now and then, the uncertainty about the outcome would make it harder for businesses to plan and invest. And if the push would succeed, it would bring the total cost of the tax cuts to over $5 trillion.
Either way, taxes would fall far short of what Congress spends, even with the Medicaid cuts that the House favors. The result would be trillions of dollars in deficits, driving the debt as a share of G.D.P. on an even steeper and less sustainable upward trajectory.
The consequences for ordinary Americans would be severe. The growing debt would drive up interest rates, forcing families to pay more for mortgages and restricting the funds businesses need to invest and grow. The United States would depend more on foreign lending, which would swell our trade deficit. All of this would lead to slower economic growth, which would probably make the tax cuts even more expensive than today’s headlines suggest.
Next up for tax reform: fairness. This quality depends more on the eye of the beholder, but notably, the proposed budget would fail to do what Mr. Trump requested. On Truth Social, he wrote that he would “graciously accept” a “‘TINY’ tax increase for the RICH.” The House bill offers no such thing. It also would not close the carried interest tax break, the special loophole for hedge funds and private equity managers that he has repeatedly asked Congress to ax. Of all the changes that he requested in the name of making the tax code more fair, the only one that made it into the bill was a reduction in tax breaks for sports owners, for a saving of about $100 million per year — a pittance compared with the tens of billions a year in new and expanded tax breaks for business owners, wealthy estates and high-income households.
There are one million American households with incomes above $1 million a year. Based on estimates by the Joint Committee on Taxation, in 2027 they would pay a staggering $96 billion less in taxes. That’s a bigger gift than what the households making less than $100,000 a year would receive, combined, even though there are 127 million of them. That amounts to an average tax cut of $82,000 apiece for millionaires, compared with $750 for the working and middle classes. (That’s bigger as a percentage of income, too. However you slice it, the rich come out ahead.) And for millions of families, those tax savings would be dwarfed by the cost of losing their Medicaid as a result of the cuts in the bill.
Nothing the proposed tax law might accomplish in terms of growth or efficiency would make up for these problems. It has a few good ideas, such as increasing the incentive for businesses to invest and undertake research, but these are not paid for — which means they would add to the debt and offset the benefits they might otherwise have for the economy. Other business tax breaks would increase incentives for overborrowing and foreign investment, at the expense of U.S. investment and financial stability. Perhaps even more important, innovation is crucial to economic growth, and taxing leading university endowments is not going to get us any more of it.
The bill even fails on the one element of tax reform that everyone agrees on: simplifying the tax code. New tax breaks for such items as auto loan interest sound good but would require people to keep track of more paperwork and fill out longer tax forms — the opposite of the worthwhile goal encouraged by the 2017 law, which encouraged people to get a simpler tax cut through a larger standard deduction.
The only good thing about this tax deform is that it is the first major economic policy this year that would not trounce on democratic norms. Mr. Trump campaigned on many of these tax cuts. The Constitution assigns the House of Representatives the role of originating tax changes. This is representative democracy in action. One can still hope that a few of those representatives will reject this waste of trillions of dollars. Blocking this approach would force Republicans to work together with Democrats on tax reform that would genuinely make taxes more straightforward, more efficient, more fair and more likely to cover the spending that Congress has chosen to undertake.
Jason Furman, a contributing Opinion writer, is a professor of the practice of economic policy at Harvard University and was the chairman of the White House Council of Economic Advisers from 2013 to 2017.
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