The Congressional Budget Office said on Thursday that making the 2017 tax cuts permanent and adding other tax breaks sought by President Donald Trump would add $6 trillion to the deficit over the next decade, giving ammunition to Democrats who argued that the GOP tax agenda would harm the economy.
The office, which is Congress’s nonpartisan in-house budget scorekeeper, also projected that the added debt would raise interest rates and thus slow growth in the long term, a contrast to a recent analysis from the White House Council of Economic Advisers that extending the tax cuts would send growth and wages soaring.
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The CBO report, which was requested by Sen. Jeff Merkley (D-OR), modeled the economic and budgetary effects of permanently codifying the 2017 Tax Cuts and Jobs Act, including individual tax cuts that will sunset at the end of this year as well as some business provisions that have already expired. The analysis also included a placeholder reduction in tax revenues to account for additional tax cuts sought by Trump, such as ending taxes on tips.
Those tax cuts are the top priority for Republicans this year. They maintain that retaining the Trump tax cuts will boost growth and help the economy, which has been struggling with inflation and high interest rates for years now. Many in the GOP, though, want to pair tax cuts with reductions in spending to avoid adding trillions to the deficit.
The CBO found that if the tax cuts are extended without offsets, by 2055, the total deficit would reach 12% of gross national product, 4.7 percentage points higher than the baseline. Debt held by the public would also grow to 220% of GDP, which is 63 percentage points higher than the baseline, the CBO said.
Growth would accelerate in the years after the tax changes happen because lower taxes would boost the labor supply and encourage more investment.
In later years, though, growth would slow relative to the baseline projects. The budget office found that per capita gross national product would be 3.3% lower in 2055 than in the CBO’s baseline, a difference of $4,375 in 2025 dollars.
“Although lower marginal tax rates would raise the supply of labor and investment by increasing the incentives to work and invest, larger deficits and debt would reduce the resources available for private investment, eventually offsetting that boost to growth,” the CBO said.
Trump’s CEA, by contrast, found that making the tax cuts permanent would increase both short- and long-term growth.
The CEO projected that the extension, along with other administration policies, will boost the level of short-run real GDP by 3.3% to 3.8% and long-run real GDP by 2.6% to 3.2%.
“Going forward, the TCJA’s extension, along with other Administration policies, will continue to produce healthy revenues because of a growing economy,” the report reads. “The 3.0 percent annual real GDP growth forecast under the Administration’s policies is projected to result in $4.1 trillion in additional revenue over the next 10 years relative to the [Congressional Budget Office’s] GDP growth projections that assume the expiration of TCJA.”
Merkley, who requested the analysis, is the top Democrat on the budget committee and one of the most liberal senators. The projections are sure to figure into Democratic efforts to block the GOP tax-cut legislation.
REPUBLICANS LOOK TO KEEP THE ESTATE TAX AT BAY
Republicans plan to pass the tax bill through budget reconciliation, a legislative process that allows for bills to bypass the filibuster and pass with only a simple majority in the Senate. Many Republicans, including a number of conservatives in the House, favor pairing large spending cuts with the tax cuts to avoid adding to the deficit.
They have the end of the year to extend or make the tax cuts permanent, or many provisions will expire, and most Americans will see a tax hike.