House leadership’s proposal to allow $4.5 trillion for tax cuts could entail some hard choices for Republicans, forcing them to compromise on some of the tax cuts proposed on the campaign trail.
The House Budget Committee released its highly anticipated budget reconciliation numbers on Wednesday. The document provides dollar figures for various committees to cut or spend through reconciliation, a legislative process that allows for bills to bypass the filibuster and pass with only a simple majority in the Senate.
At the heart of the House GOP’s reconciliation plans is an extension of the 2017 Tax Cuts and Jobs Act, better known as the Trump tax cuts. But on top of extending the cuts, President Donald Trump proposed several new and major tax changes while campaigning. Now, the House Ways and Means Committee is working to make those plans a reality while extending TCJA provisions.
The budget proposal released on Wednesday gives the Ways and Means Committee $4.5 trillion in net tax cuts through 2034 to work with. Some think that number is too low for the goals to be accomplished, meaning that some of those might have to be pared back or even scrapped.
Will McBride, vice president of federal tax policy at the Tax Foundation, told the Washington Examiner that his group estimates that a straight TCJA extension would cost $4.3 trillion, which fits within that $4.5 headline number.
But the extra priorities the White House has outlined include eliminating taxes on tips, ending taxes on Social Security, eliminating taxes on overtime pay, adjusting the cap on state and local tax deductions, and introducing tax cuts for made-in-America products.
Adjusting the state and local tax deduction cap alone could lower revenues between $200 billion and $1.2 trillion alone, according to the Committee for a Responsible Federal Budget, meaning that it could not be fit into the $4.5 trillion total allowance. Cutting taxes on tips might cost the Treasury between $100 billion and $550 billion, and cutting taxes on Social Security could add up to $1.5 trillion more.
Those policies all could be scaled back in various ways. And Trump has also called for provisions that would raise revenues and thereby make fiscal space for tax cuts, including removing special tax breaks for billionaire sports team owners and closing the carried interest tax deduction “loophole.”
Fitting all those priorities into a cap of $4.5 trillion would be difficult or impossible.
Rep. Max Miller (R-OH), a member of the Ways and Means Committee, was skeptical that $4.5 trillion would be enough.
“It should be larger, yeah, without question,” Miller said.
Miller said that Republicans are “about a trillion off of where we need to be in order to make it work”
Still, GOP tax writers have other tools at their disposal.
McBride said that the Ways and Means Committee could also introduce tax offsets so that there is more room to dedicate to the Trump tax priorities. For instance, they could cut green tax credits created by the 2022 Inflation Reduction Act, which Democrats passed and President Joe Biden signed. The law includes hundreds of billions of dollars in credits for electric vehicles and clean energy technologies that Republicans could eliminate, offsetting new tax cuts.
“We don’t have any of those details, and that would allow them to put in additional tax cuts and still be within this $4.5 trillion number,” he said.
Still, attempting to include all of Trump’s tax priorities coupled with a straight extension of the TCJA, even offsets included, might be challenging. Because many of the campaign tax proposals were never nailed down in great detail, some of the projections for the most expansive versions of these proposals could add several trillion dollars to the cost, according to McBride.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
“My guess is that there will be an effort to address some of those ideas, potentially many of those ideas, that Trump laid out on the campaign trail, but in a way that essentially has a smaller budgetary impact,” McBride said.
Notably, there is a markup of the budget proposal set for Thursday, so the blueprint could be revised to give Ways and Means more breathing room.